Average daily turnover on commodity exchanges fall 25% YoY

Kolkata: The average daily turnover (ADT) on commodity exchanges has fallen 25 per cent in March 2021 from March 2020 and by 27 per cent compared from February 2021. The Commodity Participants Association of India (CPAI) attributes this fall in average daily turnover to existing challenges pertaining to Integrated Goods & Services Tax (IGST), peak margin and the commodity transaction tax.

CPAI has sought Union Finance Minister Nirmala Sitharaman’s intervention so that the ADT at the commodity exchanges can go up. Members of CPAI met the FM on Thursday to discuss about how to increase the liquidity flow to the commodity exchanges in the country.

CPAI has also pointed out that equity markets have also seen a sharp fall of 19% in ADT in March from February, while equity futures volumes are down by 14%.

“In today’s pandemic times, when the government is supporting industries with schemes like production-linked incentive (PLI), commodity market participants have also urged the finance ministry for policy support to improve market depth and liquidity and enable India to emerge as a price setter of commodities,” said Narinder Wadhwa, president, CPAI.

All trades that result in delivery on the exchange platform are covered under IGST except for where the buyer and seller are in the same state. If the buyer and seller are in different states from the place of delivery, challenges are faced by market participants on IGST registrations, which increases their compliance burden.

“We have urged the FM to suitably amend the IGST Act in order to allow the seller of commodities to raise the tax invoice from the state where he is already registered. We have also urged FM to do away with the need of obtaining a casual taxable person registration in the state where the accredited warehouse is located,” said Wadhwa.

CPAI further submitted that the place of supply of goods should be the registered address of buyer and not the physical location of the goods at the time of delivery – either actual or constructive.

Wadhwa said that Securities and Exchange Board of India had 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. As per the schedule, peak margin obligation of client which was 25 per cent from December 1, 2020, will go up in a phased manner to 100 per cent by September 1.

“With margins slated to increase as per schedule, markets are likely to witness a significant drop in volumes and participation. The same can also be observed from the trend in equity markets where volumes, especially intraday volumes, have shifted from equity and futures markets (down 19 % and 14 % month on month) where the margin is higher, to options markets (up 16 % month on month) where the margin is lower, particularly when options are purchased. Our markets are already saddled with higher costs compared to global markets. A large part of the costs is regulatory costs. Further with the increased margin requirements on day trades, overall liquidity and depth could go down further,” the CPAI president explained.

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