The government has asked the Securities and Exchange Board of India (Sebi)
to ban sugar futures trading as it does not want a few traders and speculators
setting prices in a year when there is likely to be a shortfall of the
commodity. According to three people familiar with the development, the
government is concerned that futures market aren’t setting the correct price
signals.
It
is an expected shortfall of sugar stocks in this financial year. It is a
unanimity emerging that the futures trading in sugar be banned to address the
rising prices and expected sugar stock shortfall,” said a financial ministry
official.
Sebi
has replied to the ministry, saying the lack of liquidity and depth in the
sugar futures market are partly due to a government rule which caps stock
holding by dealers at 500 tonnes.
The erstwhile
Forward Markets Commission (FMC) and Sebi have been telling the government that
the stock limit of physical market should not be made applicable to the
accredited ware-houses of the commodity exchanges.
According to
commodity market regulations, the position limit in near month sugar contracts
is 5,000 tonnes, 10 times the government cap. After this stock limit was
imposed, sugar future volumes fell from as high as 53,000 tonnes a month to an
average 19,000 tonnes in May and June.
This would
be the second agricultural commodity that would face a ban due to high prices
since Sebi took over as commodity regulator in September last year. Sebi in
June banned Channa contracts on account of high prices of pulses.
Before
finalizing any decision, the finance ministry may have another round of
meetings with ministry of food & civil supplies, ministry of agriculture
and Sebi,” said the ministry official
