New market

New Delhi, Dec. 24: The government may allow futures trading in onion and potato to minimise price volatility in the commodities market.

“We are considering the option of allowing futures trading in onion and potato to bring price stability in these essential items,” said consumer affairs secretary L. Mansingh.

The government has already finalised the draft of the Forward Contract (Regulation) Amendment Bill. The draft bill contains proposals for setting up of a Forward Markets Appellate Tribunal on the lines of the Security Appellate Tribunal (SAT), which was set up under the Sebi Act.

It will also pave the way for the creation of an options market for commodities. At present, options trading in goods is prohibited.

An inter-ministerial work group had recommended that FMC and Sebi should be merged with an independent and new regulator for both the markets. A subsequent study undertaken by the Financial Markets International (FMI) of USA by the department of food and consumer affairs and USAID, however, had highlighted the significant differences between the nature of the two markets.

According to the FMI, because of these differences in economic functions ? capital formation versus risk management and price discovery ? securities and commodities future laws and regulators have a different focus.

Mansingh said the government has constituted a high-powered committee headed by Alka Sirohi, additional secretary (consumer affairs), to study the issue and make recommendations.

Sirohi said the committee would submit its report on allowing essential commodities like onion and potato at the futures platform in the next three months. The matter will then be sent for approval by the union cabinet.

Commodities futures trading has increased manifold, especially after the setting up of the three national multi-commodity exchanges. Commodities futures trade value has increased from Rs 34,495 crore in 2001-02 to Rs 7,80,000 crore at the end of September this year.

The government has notified about 100 commodities for futures trading. However, at present, futures trading is being conducted in 81 of these commodities through 24 recognised associations.