Among the several bills pending before Parliament,the Forward Contracts (Regulation) Amendment Bill,2010,has been hanging fire since its introduction in the Lok Sabha in 2006. The Bill proposes to provide autonomy to the Forward Markets Commission (FMC) and will also clear the road for exchanges to offer options and index trading,something that will go a long way in benefitting farmers who can possibly hedge against falling prices as well as take advantage of the rise in prices of agricultural commodities.
As of now the futures trading is available in the commodities market but the cost of trading in it is fairly high and involves margin payment of 3-5 per cent of the contract value. In case of options,they can enter into a contract by just paying an option premium,which is significantly lower and is less than 0.5 per cent of the contract value. This will make it more feasible way for farmers to safeguard themselves against price volatility. Also in options,the buyer of the option has the right but is under no obligation to honour the contract. Similarly the index trading will allow exchanges to come out with product innovations.
The FCRA also provides for change in composition and functioning of FMC and looks to enhance its powers,much on the lines of the Sebi. It will also allow entry of institutional investors in the segment. The Bill also proposes to designate the Securities Appellate Tribunal as the forum for appeals against FMC orders and for the same,the Sebi Act,1992,will also be amended. While 8 bills of the Agriculture and Rural Department are pending to be passed,including the high priority National Food Security Bill,2011,industry insiders are skeptical if the Bill can see the light of the day in the current Budget session considering the political environment,even though it has the potential to paint the future roadmap for commodities trade. While it is something that the sector has been looking at for quite some time now and it may not be controversial as it seems to incorporate certain changes that will benefit farmers and provide more powers to the regulator,it requires Parliament to function first the most critical prerequisite for now.
Sandeep is a senior assistant editor based in Mumbai.