Commodity Futures Market Has Helped Better Price Discovery: Reserve Bank of India..

The 11th issue of the Financial Stability Report released by the Reserve Bank of India (RBI) on June 25, 2015 states that the futures market has enhanced liquidity in commodity trading, which has not only helped better price discovery at the national level but has also created a physical market for commodities. Enabling infrastructure, such as warehouses and supply chain participants, have helped scientific storage of commodities and reduced price volatility in the long run.

While the report stresses on the need for stronger linkages between spot and futures markets in commodities, it hopes that with the proposed merger of the FMC with the SEBI and inclusion of commodity derivatives under the definition of securities, the regulatory mechanism of the futures market would be strengthened and harmonized.

The report calls for using technology to advantage for improving the efficiency of spot markets and suggests that the Agri-tech Infrastructure Fund be used to that effect.

To boost warehousing facilities and encourage warehouse receipt financing, the report suggests legislative and tax reforms.

The report hopes that with the merger of the FMC with the SEBI, advanced derivative products like index/options and weather derivatives could be launched on commodity exchanges. Weat could be an important tool for hedging climaterelated risks, the report noted.

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