Libor rigging scandal of 2012 is still fresh in my mind. It was time when I was working with a London-based Bank and the bank too, was convicted of rigging the Libor rates. Libor is an interbank operating rate and is also a basis for determining the value of the financial contracts like futures and its manipulation can have deep impact on such valuations. And , thus an attempt was made by various banks to rig this rate and profiteer from such an activity. All the major banks were involved in this. To name a few, they were Deutsche Bank, Barclays, UBS,RBS, Rabobank, HSBC, Bank of America, Citigroup, JPMorgan Chase etc. Later, these banks were penalized by regulators for their crime. But question is that whether the whole trading community has to be tarnished for what was done by handful of traders at these institutions?
The answer is an absolute no. In any profession , there are good professionals and bad professionals. The ethical standards of any professional body are to be overseen by regulatory bodies. The regulatory bodies, either self regulatory or regulated by government, determine the overall health of sector and a few instances of exploitation cannot debase the very existence of a particular profession. Farm bills have brought an interesting debate on Indian farming landscape. It is being stereotyped that Commission agents or Arhtiyas are the most exploitative lot in farming and there is a need to check the exploitation.
This argument is way off the reality and is chugged out of thin air. A trader whether he is in an investment bank or on a commodity desk in some local shop in punjab has the same fundamental philosophy. To manage the risk and book the profits. A suited-booted trader does that by signing of various positions in a speculative market and an arhtiya does that by keeping a close tab on commodity production and its offtake by procurement agencies. No market gives permanent arbitrage and existence of long term trader or an Arhtiya depends solely on value addition to its clients which can be in form of various tangible or intangible inputs
Trading is an important market activity. It provides essential liquidity to the market. It ensures that seller has a buyer and a buyer has a seller. Most of the time, it is the trader who bears the cost of carry and risk of unsold inventory. A corollary to that is that trader makes extraordinary profits as he is taking extraordinary risk. Also, Ninety-Five percent of retail investors lose money in stock market but yet no one has ever alleged that the trader is the exploiter. The trader is simply doing his job i.e. to trade the positions. Farm bills or no farm bills, trading community is here to stay but it is a wake up call for Indian society to get out of stereotypes and see the ground reality and the role of each profession in a supply chain.
Farm bills are only likely to produce corporate traders which will gradually replace existing small traders. This is not very difficult to contemplate because whenever any market moves towards capitalism only few dominant players will exist. The question of exploitation will remain unanswered till there is a legal protection of the farming fraternity. Strong regulatory oversight with assured income to farmers is the need of hour and will go a long way in developing the farm sector. Further, trading community should not be seen as exploiter but a facilitator and should be made a stakeholder in the modern farming infrastructure which India desperately needs. Thus, there is a strong need to rethink our idiosyncrasies and bring an all inclusive approach to India’s farming sector.