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What is the present system of regulation in commodity forward/future trading in India?
At present, there are three tiers of regulations of forward/futures trading system exists in India, namely, Government of India, Forward Markets Commission and Commodity Exchanges. The FC(R) Act, 1952 prohibits options in commodities. For the purpose of forward contracts in certain commodities can be regulated by notifying those commodities u/s 15 of the Act; forward trading in certain other commodities can be prohibited by notifying these commodities u/s 17 of the Act.
What is the need for regulating futures market?
The need for regulation arises on account of the fact that the benefits of futures markets accrue in competitive conditions. The regulation is needed to create competitive conditions. In the absence of regulation, unscrupulous participants could use these leveraged contracts for manipulating prices. This could have undesirable influence on the spot prices, thereby affecting interests of society at large.. Regulation is also needed to ensure that the market has appropriate risk management system. In the absence of such a system, a major default could create a chain reaction. The resultant financial crisis in a futures market could create systematic risk. Regulation is also needed to ensure fairness and transparency in trading, clearing, settlement and management of the exchange so as to protect and promote the interest of various stakeholders, particularly non-member users of the market.
What is Forward Markets Commission and where is it located?
Forward Markets Commission is a regulatory body for commodity futures/ forward trade in India. This was set up under the Forward Contracts (Regulation) Act of 1952. It is responsible for regulating and promoting futures/ forward trade in commodities. The Forward Markets Commissionís Head Quarter is located at Mumbai and Regional Office at Kolkata. The Address of the contact person is as follows :- The Chairman, Forward Markets Commission, Ministry of Finance, (Department of Economic Affairs), Government of India, "Everest", 3rd floor, 100, Marine Drive,Mumbai - 02 . Telephone No. (022) 22795300 Fax No. (022) 22812086, E-mail :- , Web-site :-
What are the functions of the Forward Markets Commission ?
(a) FMC advises Central Government in respect of grant of recognition or withdrawal of recognition of any association. (b) It keeps forward markets under observation and takes such action in relation to them as it may consider necessary, in exercise of powers assign to it. (c) It collects and publishes information relating to trading conditions in respect of goods including information relating to demand, supply and prices and submit to the Government periodical reports on the operations of the Act and working of forward markets in commodities. (d) It makes recommendations for improving the organization and working of forward markets. (e) It undertakes inspection of books of accounts and other documents of recognized/registered associations.
What are the powers of the Commission?
The Commission has powers of deemed civil court for (a) Summoning and enforcing the attendance of any person and examining him on oath; (b) Requiring the discovery and production of any document; (c) Receiving evidence on affidavits, and (d) Requisitioning any public record or copy thereof from any office. The following powers are vested in the Central Government, most of which are delegated to the Commission: The powers of approving memorandum and articles of association and Bye-laws; powers to direct to make or to make articles (Rules) or Byelaws; powers to suspend governing body of recognised association, and, powers to suspend business of recognised association.
what are the regulatory measures prescribed by Forward Markets Commission?
Forward Markets Commission provides regulatory oversight in order to ensure financial integrity (i.e. to prevent systematic risk of default by one major operator or group of operators), market integrity (i.e. to ensure that futures prices are truly aligned with the prospective demand and supply conditions) and to protect & promote interest of customers /non-members. The Forward Markets Commission prescribes following regulatory measures: (a) Limit on net open position as on the close of an individual operator and at Member level to prevent excessive speculation (b) Circuit-filters or limit on price fluctuations to allow cooling of market in the event of abrupt upswing or downswing in prices. (c) Imposition of margins to prevent defaults by Members/clients (d) Physical delivery of contracts and penalty for default/delivery obligations (e) Dialy mark to matketing of the contracts
What are the legal and regulatory provisions for customer protection?
The F.C(R) Act provides that clientís position cannot be appropriated by the member of the Exchange, except a written consent is taken within three daysí time. Forward Markets Commission is persuading increasing number of Exchanges to switch over to electronic trading, clearing and settlement, which is more customer-friendly. Commission has also prescribed simultaneous reporting system for the Exchanges following open out-cry system. These steps facilitate audit trail and make it difficult for the members to indulge in malpractices like, trading ahead of clients, etc. The Commission has also mandated all the Exchanges following open outcry system to display at a prominent place in Exchange premises, the name, address, telephone number of the officer of the Commission who can be contacted for any grievance. The website of the Commission also has a provision for the customers to make complaint, send comments and suggestions to the Commission.
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