Government will introduce a commodity transaction tax for futures, the finance minister informed the Parliament on Friday.
The finance minister also proposed to bring commodity bourses under the purview of service tax.
One of the basic functions of futures trading is price discovery – whose efficiency is a function of intensity of the relevant information regarding the fundamentals of the commodity that is factored into the prices discovered on the exchange platforms.
Relevant information on fundamentals are available with the direct participants such as the traders, producers, and corporates active in the particular commodity market sector who are privy to such information.
Though the exchanges are reaching out, their participation on the futures platform is a function not only of awareness, but also the felt need for it, access to it, the ease of entry and exit on the platform (called ‘liquidity’ in the exchange parlance), and incentives that they could derive out of it apart from the benefit of ‘risk sharing’.
While the exchanges play their part in stimulating liquidity in relevant commodities and educate the physical market participants on the benefits of participating on a futures platform, yet their participation is a function of their felt need/benefit of participation on the commodity futures platform.
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