SEBI suspends futures trading in key farm crops

• Securities & Exchange Board of India (SEBI) issued an order suspending futures trading in paddy (non-basmati), wheat, Bengal gram (chana dal), mustard seeds and its derivatives, soyabean and its derivatives, crude palm oil and green gram (moong dal) for a year, in a move believed to stem rising prices.
• In its order, SEBI asked stock exchanges in commodity derivatives segment to not to undertake any trading in derivative contracts in these key farm commodities with immediate effect.

Reasons of suspension

• The move is likely aimed at allaying inflation concerns ahead of elections next year in states including Goa, Punjab, Uttar Pradesh and Uttarakhand.
• The Centre is facing heat from opposition parties over surging prices of essential commodities.
• The latest directive also comes at a time when wholesale inflation spiked to 14.23 percent in November, from 12.5 percent in October.
• Wholesale Price Index-based inflation has remained in double digits for eight consecutive months beginning in April, mainly because of surging prices of food items.
• According to the government, edible oil prices climbed 29.7 percent in November.
• Notably, India depends on the import of edible oils to meet nearly 65 percent of its total consumption of about 22 million tonnes.
• The country has imported 13 million tonnes this year to bridge the gap between demand and domestic supply.

Impact of the move

• The suspension comes ahead of the rabi crop, sown in winter, hitting the markets in a couple of months.
• With no reference price, traders will be clueless on future sentiment. Importers, who hedge on the derivative market to safeguard themselves from price moves, may also be more vulnerable.

Impact on prices

• Initially, the outlook will be bearish as traders rush to square off open positions on derivatives.
• India's dependence on imports, however, means the rupee and global cues will dictate the fundamentals.

Securities and Exchange Board of India (SEBI)

• It is the regulatory body for securities and commodity market in India under the ownership of Ministry of Finance , Government of India.
• It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.