Regulations
FMC suggests review of easy credit for trading in commodities

Forward Markets Commission in a report suggested various measures to check speculators, including review of easy credit by banks and other institutions for trading in commodities


New Delhi: Commodities market regulator Forward Markets Commission (FMC) has suggested reviewing of easy credit by banks and other institutions for trading in commodities like guar, in a bid to curb speculation, reports PTI.

 

In the final report on 'Analysis of price movement and trading in guar complex" submitted to the Consumer Affairs Ministry, FMC has suggested various measures to check speculators participation in guar trading.

 

The regulator in May had come out with an initial report on guar futures trade during February-March 2012 and had highlighted irregularities in guar futures trade. It had also found involvement of some entities in the sharp rally during the period.

 

On the recommendations of the regulator, a senior government official said, "FMC has recommended that availability of easy finance is a prerequisite for processors, exporters and other value chain participants, but the financing for purely commodity trading needs to be curbed."

 

The option of easy institutional finance has helped in infusing additional liquidity with the commodity traders and has helped the market to grow, the official added.

 

"The regulator feels that although this step has helped infuse more funds in the market, yet, there is a need for policy review regarding commodity financing by financial institutions and banks," the official said.

 

Futures prices of guar gum at the NCDEX platform had more than doubled between February-March this year on speculation, prompting the market regulator to stop traders from taking fresh positions in the running contracts.

 

According to the exchange data, guar gum prices stood at Rs92,090 per quintal on 22nd March, as against Rs42,019 per quintal on 1st February despite negligible participation. The prices, however on 23rd March fell to Rs71,970 per quintal after FMC intervention.

 

In order to bring more transparency in the commodities futures market, FMC is considering issuing directions to large position holders to declare their physical market positions, the official said.

 

That apart, regulations on day-trading, strengthening guidelines for Margin Funding, allowing futures in narrow commodities like guar seed and gum, mentha oil, cardamom, etc are also being considered by the regulator, the official said.

 

"FMC also suggested setting up a dedicated agency to collect and disseminate timely information on production, imports, exports, stocks and overall availability of commodities to bring more transparency," the official said.

 

The regulator in its report also suggested that it should be vested with powers to impose financial penalties on erring market intermediaries directly for effective control of the commodities futures market, the official added.

 

At present, the country has five national and 16 regional commodity exchanges.

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RBI may treat part of SLR as liquidity under Basel III: Sinha

Domestic banks already have SLR holdings of 23%, which are not marketable and therefore the RBI is thinking on to work out a scheme under which part of the SLR holding can be treated with Basel III liquidity norms

 
Mumbai: Anand Sinha, Deputy Governor of the Reserve Bank of India (RBI) has said the central bank is looking at a move under which a part of banks' statutory liquidity ratio (SLR) holdings can be treated in a way that it complies with liquidity norms under the Basel III capital requirements, reports PTI.
 
"We are thinking on to how to work out a scheme under which a part of the SLR is treated as Basel III liquidity requirement," Sinha said at an event organised here by Care Ratings.
 
He said the Basel III framework -- adopted in the wake of the 2008 global financial crisis to safeguard banks in case of stress -- asks for a liquidity coverage ratio that requires banks to hold marketable high quality liquidity assets.
 
However, domestic banks cannot be asked to hold it as they already have SLR holdings of 23%, which are not marketable, Sinha said, adding that it necessitates change in the framework.
 
SLR holdings are investments by banks in government securities and other liquid assets, acting as a liquidity buffer. Many banks have excess SLR holdings with the average holding in the system standing at close to 28 per cent.
 
Since October 2010, the RBI has twice reduced the SLR limits by 1 percentage point each with the latest being in July.
 
Sinha also tried to allay fears about the impact of the Basel III regulations requiring higher capital adequacies, saying it is a cost, that too in the short-term, to pay for overall stability.
 
The net incremental capital requirement needed for the country's banks over the six-year transition period to adopt the Basel-III requirements in full is "less intimidating" than being discussed. .
 
"Our calculations show that...the incremental capital required on account of Basel III is less intimidating than the (overall) figure of Rs1.4-1.5 lakh crore (which RBI has calculated)," Sinha said.
 
Banks would anyway have had to raise capital to support growth and the Basel-III should be treated only as incremental requirement, he said.
 
This requirement, though having a short-term impact in through higher capital allotment in the short term, will only benefit the banks in the long-term as it brings in the element of stability, he said.
 
To investors fearing a dent to the return on equity on banking stocks, Sinha said the stability being bought about will reduce the risk premia.
 
Additionally, to protect their margins, banks should work on various internal issues like cutting operational costs, managerial compensations and reduce dividends, Sinha suggested.
 

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SEBI seeks special courts for speedy trials in market frauds

Expressing concern over some cases continuing for years, the SEBI Chairman said there is a need for special courts to expedite the process and it has asked the government to facilitate it


Mumbai: Worried over delays in prosecution of those found to be involved in frauds and other offences, market regulator Securities and Exchange Board of India (SEBI) has asked the government to set...

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