Forward Markets Commission (India)

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Forward Markets Commission
Agency overview
Formed 1953
Jurisdiction India
Headquarters Mumbai, India
Agency executive Ramesh Abhishek, Chairman
Parent agency Ministry of Finance
Website http://www.fmc.gov.in

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[1] worth of commodity trades in India. It is headquartered in Mumbai and this financial regulatory agency is overseen by the Ministry of Finance. Mr. Ramesh Abhishek replaced Mr. B.C. Khatua as the interim chairman of the commission in 2011. FMC is now in the middle of a big storm for its regulatory role in NSEL Scam

Chairman of FMC[edit]

Mr. Ramesh Abhishek is the Chairman of commodities regulator FMC. He is an IAS Officer of 1982 Batch (Bihar Cadre) and was appointed on 24 September 2012 as the Chairman of Forward Market Commission. Mr. Abhishek, an alumnus of the Harvard Business School, holds post graduate degrees in public administration and international relations. His role in handling NSEL scam is being questioned as the settlement plan he approved has failed miserably.

History[edit]

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 commodity trading in 22 exchanges in India, of which 6 are national.

From 2013 september 09, the commission is overseen by the Ministry of Finance. Since futures traded in India are traditionally on food commodities, earlier it was overseen by Ministry of Consumer Affairs, Food and Public Distribution (India).[2]

Development of the Industry[edit]

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.[3]

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.

The result of the period of prohibition left India with a large number of small and isolated regional futures markets. The futures markets were dispersed and fragmented, with separate trading communities in different regions with little contact with one another. The exchanges had not yet embrace modern technology or modern business practices.

Next to the officially approved exchanges, there were also 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, meant that these markets were mostly "regulated" by the reputation of the main players.

Responsibilities and functions[edit]

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,[4] 15 spices,[5] 44 edible oils,[6] 6 pulses,[7] 4 energy products,[8] single vegetable,[9] 20 metal futures,[10] 33 others[11] Futures.

The commission appeared in the news in March 2012 for their controversial ban on guar gum futures trading after it said the price quadrupled due to its use in fracking causing food inflation.[12]

See also[edit]

References[edit]

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