To revive investor confidence in the commodities market that has plummeted after a Rs 5,600 crore payment crisis at National Spot Exchange Ltd (NSEL), the Forward Markets Commission (FMC) has asked the Securities and Exchange Board of India (Sebi) to make it mandatory for listed companies to disclose their exposure in commodities hedging.
Commodity market regulator FMC has also written to the Finance Ministry to direct banks to insist on borrowers who have exposure to commodities, hedging their price risks.
"Trading volumes are declining on all commodity exchanges as investor confidence was shaken after the NSEL payment crisis surfaced. We are taking measures to address this issue," FMC Chairman Ramesh Abhishek told PTI.
"We have written a letter to the SEBI to make it mandatory for listed companies to disclose their exposure in commodities hedging," he said.
"A separate letter has been written to the Department of Financial Services to direct banks to insist borrowers to hedge their price risk in commodities."
Mr Abhishek said that sharing information about exposure in commodities hedging will give confidence to smaller companies to hedge on the exchange platforms, thereby rebuilding trading volumes in the domestic commodity markets.
Currently, hedging in Indian commodity bourses is taking place on a very small scale with scope for development. The companies hedge in commodities to offset risks arising out of fluctuations in raw-material prices.
Trading volumes at the commodity exchanges have fallen sharply ever since the the Rs 5,600 crore payment default came to fore at NSEL, a spot exchange run by promoters of the MCX - the country's largest commodity bourse.
As per FMC data, the turnover of the commodity exchanges has nearly halved to Rs 4.64 lakh crore in April this year, from Rs 8.68 lakh crore in August 2013 when the NSEL crisis came to light.
Subsequently, a national level exchange - ICEX - had to fold its operations due to a sharp drop in trading volumes. Besides the NSEL fiasco, the imposition of commodity transaction tax (CTT) also led to fall in volumes.
At present, there are 15 commodity bourses in the country, of which MCX, NCDEX, NMCE, ACE and UCX operate at national level.