| Forward Markets Commission | |
|---|---|
| Agency overview | |
| Formed | 1953 |
| Jurisdiction | India |
| Headquarters | Mumbai, India |
| Agency executive | Ramesh Abhishek, Chairman |
| Parent agency | Ministry of Consumer Affairs, Food and Public Distribution |
| 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 unusually for a financial regulatory agency is overseen by the Ministry of Consumer Affairs, Food and Public Distribution (India). Mr. Ramesh Abhishek replaced Mr. B.C. Khatua as the chairman of the commission in 2011.
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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 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.[2]
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.
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.
The functions of the Forward Markets Commission are as follows:
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.