MUMBAI: Participation by foreign pension, hedge funds, private equity funds and brokers in commodity futures trading may not fructify if the government accepts a recommendation of the Parliamentary Standing Committee (PSC) on Consumer Affairs, which feels the time is not yet ripe for their presence.
The report notes, "The Committee per se is not averse to competition thrown by foreign participants and foreign inter- mediaries however an orderly, mature and vibrant commodity market needs to be in place in order to meet the challenges and competition from foreign participants... the committee are (sic) of the opinion that in the interest of the commodity market, it will neither be desirable nor appropriate to allow foreign participants or foreign intermediaries in the commodity market. Clause 21 of the Bill may thus be suitably amended."
The Forward Contracts (Regulation) Amendment Bill, 2010 does not bar foreign participants from trading on the commodity futures market. BC Khatua, former chairman, Forward Markets Commission (FMC), who took part in a few PSC meetings, felt that foreign institutional investors like pension funds and mutual funds should be allowed to trade as their participation would deepen the market.
However, Khatua did not favour participation by foreign hedge or private equity funds whose ultimate investors high networth individuals had a propensity for higher risk taking and whose presence could therefore increase price volatility.
A pension fund, for example, is a trustee of funds for a pensioner and therefore more risk-averse compared with a hedge fund, was what FMC argued.
The commodity futures market in India currently permits trading by residents who can be the actual users of commodities or retail investors looking for making a gain by taking an opposite view to hedgers. The eight-year-old market posted a turnover of Rs 137 lakh crore in the financial year through December (FY12), up 66% from a year ago.
Another "surprising" recommendation, according to a few industry officials who requested anonymity, was capping the retirement age of the FMC chairman and its members at 60.
"At Irda, a chairman can retire at 65 and members at 62 Sebi also can extend the term of its chairman above 60.... so the PSC recommendation on retirement comes as a surprise," said a market source. "It is important to have officials with domain experience and that can be possible even if somebody is appointed to the chairman's post at 60," he added.
Vilas Muttemwar, chairman of the department-related standing committee, told ET the retirement age was not as much of importance as the qualifications of the person appointed to the chair, or its members.
Source : economictimes.indiatimes.com