Forward Trading and Forward Markets Commission
Forward Markets Commission (FMC) is a statutory body set up under Forward Contracts (Regulation) Act, 1952 and functions under the administrative control of the Ministry of Consumer Affairs, Food and Public Distribution. The FMC regulates forward markets in commodities through the recognised associations, recommends to the Government the grant / withdrawal of recognition to the associations organizing forward trading in commodities and makes recommendations for general improvement of the functioning of forward markets in the country.
At present, there are 24 exchanges including three 'national level' exchanges which have been recognised for conducting futures/forward trading in India and all the commodities have been permitted for trading. During the current year "Thermal Coal" and "Carbon Credit" have also been allowed to be traded on recognized Commodity Exchanges.
In tune with the liberalisation of the commodity markets in India, all the operational exchanges have been persuaded to implement various reforms such as online trading, time stamping, trade guarantee and settlement mechanism, one third independent board representation and back-office automation. In addition to the setting up of the nation wide multi-commodity exchanges, there are a number of ancillary areas, which are being looked at for the orderly and harmonious development of the commodity derivatives market. This includes removing a host of controls on movement, prices, etc. on commodities, sorting out certain tax related issues, standardisation, certification and warehousing issues, the usage of warehouse receipts, participation by diverse groups of players, banks, FIs and FIIs and so on. The Government is simultaneously making efforts in all these directions.
The commodity futures market is regulated under the provisions of the Forward Contracts (Regulation) Act, 1952 (FCR Act). In order to include some new features that are in tune with the latest development in the commodity futures market, this Department has proposed Amendments to the FCR Act. Accordingly, Forward Contracts (Regulation) amendment Bill, 2006 was introduced in the Lok Sabha on 21.03.2006. However, since this issue was related to financial and market integrity, the Government hastened the process of amendment by promulgating forward Contracts (Regulation) Ordinance, 2008 on 31.01.2008. The main elements of the amendment are as follows:
- Increase the maximum number of members of Forward Market Commission from four to nine out of which three to be whole time members and a chairman;
- Confer power upon the FMC to levy fees;
- Provide for constitution of FMC General Fund to which all grants, fees and all sums received by the FMC shall be creadited except penalty and apply the funds for meeting the expenses of the Commission;
- Make provisions for corporation and demutualisation of recognized association in accordance with the scheme to be approved by the FMC;
- Make provisions for registration of members and intemediaries;
- Allow trading in options;
- Make provisions for investigation, enforcement and penalty in case of contravention of the provisions of the FCR Act.
In order to replace the said Ordinance, a fresh Bill-the Forward Contracts (Regulation) Amendment Bill 2008 was introduced in Lok Sabha on 13.03.2008. The earlier FCR (A) Bill 2006 which was pending in the Lok Sabha, was withdrawn simultaneously.
The liberalization and opening up of commodities futures market has started showing results in terms of significant jump in the volume and value of futures trading in commodities. During 2007-08, the total value of commodity futures trade has been Rs. 40.66 lakh crore as compared to Rs. 36.76 lakh crore during 2006-07 showing an increase of 10.6%. The trading volume and value have increased by manifold after the three national Exchanges were setup. National Multi-Commodity Exchange of India, Ahmedabad (NMCE), Exchange of India Ltd., Mumbai (MCX) and National Commodity and Derivative Exchange Ltd., Mumbai (NCDEX) started trading in November 2003. The following table shows the increase in commodity futures trading volume and value since the setting up of the national Exchanges.
| Commodity Futures Trading Value since 2002-03 | ||||||
|---|---|---|---|---|---|---|
| Year | 2002-03 | 2003-04 | 2004-05 | 2005-06 | 2006-07 | 2007-08 |
| Value of trading | 66,530 | 1,29,363 | 5,71,759 | 21,55,122 | 36,76,926 | 40,65,989 |
| (Rs. in crore)* | ( 92 ) | ( 94 ) | ( 341 ) | ( 274 ) | ( 70 ) | (10.56) |
* Figures in parenthesis are % change over previous year.
Source: National Portal Content Management Team, Reviewed on: 02-06-2010 
