The Commodity Participants Association of India (CPAI) on Thursday met Finance Minister Nirmala Sitharaman and sought her immediate intervention and policy support following a sharp decline in the volumes of exchange-traded commodities. During the meeting, the CPAI representatives expressed their concerns pertaining to current challenges and hurdles that the industry is facing, which are contributing to diminishing liquidity on Indian commodity exchanges. Commodity markets’ average daily turnover (ADT) has shrunk further by 27 per cent between February and March 2021. Besides, equity markets have also seen a sharp fall of 19 per cent in ADT in this period, while equity futures volumes are down by 14 per cent.

 

Indian commodity exchanges are failing to recover from liquidity issues owing to existing challenges pertaining to IGST, peak margin and commodity transactions tax (CTT) and securities transactions tax (STT), CPAI, the pan-India apex association of commodity market participants, said in a statement. “In today’s pandemic times, when GoI (Government of India) is supporting industries with schemes like production-linked incentive (PLI), commodity market participants have also urged the MoF (Ministry of Finance) for policy support to improve market depth and liquidity, and enable India to emerge as a price setter of commodities,” Narinder Wadhwa, President, CPAI, said. “Implementing our suggestions will reduce the cost of hedging in commodity markets, bring ease of doing business,” he added.

 

The CPAI has placed their concerns and sought the FM's intervention on three key issues -- rationalising the peak margin requirement to maintain market depth and turnover; rationalising cost of transactions and amending IGST Act owing to the challenges faced by market participants while delivering or receiving goods at the designated centres. Sebi implemented a peak margin requirement for all clients from December 1, 2020. Under the plan, clients were to be allowed reduced leverage on intraday positions in phases. In first phase from December 2020, the client was required to have 25 per cent of the peak margin available with the broker. In the next phase (Mar-May 2021), the peak margin that needs to be available with the broker is 50 per cent while in the third phase (June-August 2021), the client needs to have 75 per cent peak margin wih the broker. By September 2021, clients need to have 100 per cent peak margins. With margins slated to increase in phases, the CPAI said markets are likely to witness a significant drop in volumes and participation.