Forward Markets Commission
Encyclopedia
The Forward Markets Commission (FMC) is the chief regulator of forwards
and futures
markets in India
. As of March 2009, it regulated Rs
52 trillion worth of commodity trades in India. It is headquartered in Mumbai
and unusually for a financial regulatory
agency is overseen by the Ministry of Consumer Affairs, Food and Public Distribution (India)
.
trading in 22 exchanges in India, of which three are national.
Uniquely the FMC falls under the Ministry of Consumer Affairs, Food and Public Distribution
and not the finance ministry as in most countries. This is because futures, traded in India, are traditionally on food commodities. However, this has been changing and there have been calls for change in the industry and in regulation. One proposal is the merging the commodities derivatives and securities regulation by including the Forward Market Commission within the Securities and Exchange Board of India
(SEBI), the primary securities regulator in India. However as of 2003 there is no clear consensus for this move.
However, in 1935 a law was passed allowing the government to in part restrict and directly control food production (Defence of India Act, 1935). This included the ability to restrict or ban the trading in derivatives on those food commodities. Post independence, in the 1950s, India continued to struggle with feeding its population and the government increasingly restricting trading in food commodities. Just at the time the FMC was established, the government felt that derivative markets increased speculation which led to increased costs and price instabilities. And in 1953 finally prohibited options and futures trading altogether.
The industry was pushed underground and the prohibition meant that development and expansion came to a halt. In the 1970 as futures and options markets began to develop in the rest of the world, Indian derivatives markets were left behind. The apprehensions about the role of speculation, particularly in the conditions of scarcity, prompted the Government to continue the prohibition well into the 1980s.
This left the India with a large number of small and isolated regional futures markets. The futures markets are dispersed and fragmented, with separate trading communities in different regions with little contact with one another. The exchanges generally have yet to embrace modern technology or modern business practices.
Next to the officially approved exchanges, there are many havala markets. Most of these unofficial commodity exchanges have operated for many decades. Some unofficial markets trade 20–30 times the volume of the "official" futures exchanges. They offer not only futures, but also option contracts. Transaction costs are low, and they attract many speculators and the smaller hedgers. Absence of regulation and proper clearing arrangements, however, mean that these markets are mostly "regulated" by the reputation of the main players.
It allows futures trading in 23 Fibers and Manufacturers, 15 spices, 44 edible oils, 6 pulses, 4 energy products, single vegetable, 20 metal futures, 33 others Futures.
Forward contract
In finance, a forward contract or simply a forward is a non-standardized contract between two parties to buy or sell an asset at a specified future time at a price agreed today. This is in contrast to a spot contract, which is an agreement to buy or sell an asset today. It costs nothing to enter a...
and futures
Futures exchange
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts; that is, a contract to buy specific quantities of a commodity or financial instrument at a specified price with delivery set at a specified time in the future. These types of...
markets in India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
. As of March 2009, it regulated Rs
Indian rupee
The Indian rupee is the official currency of the Republic of India. The issuance of the currency is controlled by the Reserve Bank of India....
52 trillion worth of commodity trades in India. It is headquartered in Mumbai
Mumbai
Mumbai , formerly known as Bombay in English, is the capital of the Indian state of Maharashtra. It is the most populous city in India, and the fourth most populous city in the world, with a total metropolitan area population of approximately 20.5 million...
and unusually for a financial regulatory
Financial regulation
Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system...
agency is overseen by the Ministry of Consumer Affairs, Food and Public Distribution (India)
Ministry of Consumer Affairs, Food and Public Distribution (India)
The Ministry of Consumer Affairs, Food and Public Distribution is a government ministry of India. The Ministry is headed by a minister of Cabinet rank...
.
History
Established in 1953 under the provisions of the Forward Contracts (Regulation) Act, 1952, it consists of two to four members, all appointed by the Indian Government. Currently, the Commission allows commodityCommodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
trading in 22 exchanges in India, of which three are national.
Uniquely the FMC falls under the Ministry of Consumer Affairs, Food and Public Distribution
Ministry of Consumer Affairs, Food and Public Distribution (India)
The Ministry of Consumer Affairs, Food and Public Distribution is a government ministry of India. The Ministry is headed by a minister of Cabinet rank...
and not the finance ministry as in most countries. This is because futures, traded in India, are traditionally on food commodities. However, this has been changing and there have been calls for change in the industry and in regulation. One proposal is the merging the commodities derivatives and securities regulation by including the Forward Market Commission within the Securities and Exchange Board of India
Securities and Exchange Board of India
The Securities and Exchange Board of India is the regulator for the securities market in India.-History:It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament...
(SEBI), the primary securities regulator in India. However as of 2003 there is no clear consensus for this move.
Development of the Industry
India has a long history of trading commodities and considered the pioneer in some forms of derivatives trading. The first derivative market was set up in 1875 in Mumbai, where cotton futures was traded. This was followed by establishment of futures markets in edible oilseeds complex, raw jute and jute goods and bullion. This became an active industry with volumes reported to be large.However, in 1935 a law was passed allowing the government to in part restrict and directly control food production (Defence of India Act, 1935). This included the ability to restrict or ban the trading in derivatives on those food commodities. Post independence, in the 1950s, India continued to struggle with feeding its population and the government increasingly restricting trading in food commodities. Just at the time the FMC was established, the government felt that derivative markets increased speculation which led to increased costs and price instabilities. And in 1953 finally prohibited options and futures trading altogether.
The industry was pushed underground and the prohibition meant that development and expansion came to a halt. In the 1970 as futures and options markets began to develop in the rest of the world, Indian derivatives markets were left behind. The apprehensions about the role of speculation, particularly in the conditions of scarcity, prompted the Government to continue the prohibition well into the 1980s.
This left the India with a large number of small and isolated regional futures markets. The futures markets are dispersed and fragmented, with separate trading communities in different regions with little contact with one another. The exchanges generally have yet to embrace modern technology or modern business practices.
Next to the officially approved exchanges, there are many havala markets. Most of these unofficial commodity exchanges have operated for many decades. Some unofficial markets trade 20–30 times the volume of the "official" futures exchanges. They offer not only futures, but also option contracts. Transaction costs are low, and they attract many speculators and the smaller hedgers. Absence of regulation and proper clearing arrangements, however, mean that these markets are mostly "regulated" by the reputation of the main players.
Responsibilities and functions
The functions of the Forward Markets Commission are as follows:- To advise the Central Government in respect of the recognition or the withdrawal of recognition from any association or in respect of any other matter arising out of the administration of the Forward Contracts (Regulation) Act 1952.
- To keep forward markets under observation and to take such action in relation to them, as it may consider necessary, in exercise of the powers assigned to it by or under the Act.
- To collect and whenever the Commission thinks it necessary, to publish information regarding the trading conditions in respect of goods to which any of the provisions of the act is made applicable, including information regarding supply, demand and prices, and to submit to the Central Government, periodical reports on the working of forward markets relating to such goods;
- To make recommendations generally with a view to improving the organization and working of forward markets;
- To undertake the inspection of the accounts and other documents of any recognized association or registered association or any member of such association whenever it considers it necessary.
It allows futures trading in 23 Fibers and Manufacturers, 15 spices, 44 edible oils, 6 pulses, 4 energy products, single vegetable, 20 metal futures, 33 others Futures.