Call us for Counseling - 9580048004, For Support - 8860807050.  

Tags Current Affairs

SEBI suspends futures trading

Date: 25 December 2021 Tags: miscellaneous

Issue

Directions to suspend commodity derivatives have been issued by Securities & Exchange Board of India (SEBI).

 

Background

The directions will hold good for a period of one year. The derivative contracts in some commodities were already suspended in August.

 

Details

  • The rules will be applicable for paddy (non-basmati), wheat, chana, mustard seeds and its derivatives, soya bean and its derivatives, crude palm oil and moong.

  • The move was expected following concerns about high food prices, which are at the heart of the country’s elevated inflation.

 

Reasons for directions

  • The prices of oilseed and edible complex have reached an all-time high. They are important part of households and value chain participants.

  • Speculators have a major role in increasing the prices and this has to be discouraged to curb inflation and support growth.

 

Implications

  • The trading suspensions imposed in the past have stopped large institutional investors from participating in these contracts.

  • Volumes and liquidity on exchanges are bound to drop sharply if derivative contracts are suspended by the SEBI.

 

Consumer inflation

The consumer inflation has been pegged at 5.3% for the current fiscal year. This is one percentage point above the RBI’s comfort level of 4%.
 

Way ahead

Alternative means such as imposing tighter daily limits on sensitive commodities or by increasing trading margins can help in curbing speculation based inflation.

 

Derivative contracts

  • Derivative contracts are agreement between two or more parties where the value of the derivative is based upon an underlying asset.

  • The trading of the derivative takes place when traders speculate on the future price of an asset through buying or selling of derivative contracts.

Notice (8): Undefined variable: quizpole [ROOT/plugins/Studyiq/src/Template/Pages/tagdetails.ctp, line 161]