The Forward Markets Commission (FMC) is the
regulatory body
A regulatory agency (regulatory body, regulator) or independent agency (independent regulatory agency) is a government authority that is responsible for exercising autonomous dominion over some area of human activity in a licensing and regulatin ...
for the
commodity market
A commodity market is a market that trades in the primary economic sector rather than manufactured products, such as cocoa, fruit and sugar. Hard commodities are mined, such as gold and oil. Futures contracts are the oldest way of investin ...
and
futures market
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or fi ...
in
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
. It is a
division
Division or divider may refer to:
Mathematics
*Division (mathematics), the inverse of multiplication
*Division algorithm, a method for computing the result of mathematical division
Military
*Division (military), a formation typically consisting ...
of the
Securities and Exchange Board of India
The Securities and Exchange Board of India (SEBI) is the regulatory body for securities and commodity market in India under the ownership of Ministry of Finance within the Government of India. It was established on 12 April 1988 as an executive ...
,
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
,
Government of India
The Government of India (ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, c ...
. As of July 2014, it regulated
Rs 17 trillion worth of commodity trades in India. It is headquartered in
Mumbai
Mumbai (, ; also known as Bombay — the official name until 1995) is the capital city of the Indian state of Maharashtra and the ''de facto'' financial centre of India. According to the United Nations, as of 2018, Mumbai is the second- ...
and this
financial regulatory agency is overseen by the
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
. The Commission allows
commodity
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
trading in 22 exchanges in India, of which 6 are national.
On 28 September 2015 the FMC was merged with the
Securities and Exchange Board of India
The Securities and Exchange Board of India (SEBI) is the regulatory body for securities and commodity market in India under the ownership of Ministry of Finance within the Government of India. It was established on 12 April 1988 as an executive ...
(SEBI) to make the regulation of commodity futures market strong.
History
Established in 1953 under the provisions of the Forward Contracts (Regulation) Act, 1952, it consists of not less than two but not exceeding four members appointed by the central government, out of them one being nominated by the central government to be the chairman of the commission.
Since futures traded in India are traditionally on food commodities, the agency was originally overseen by
.
The commission appeared in the news in March 2012 for their ban on
guar gum
Guar gum, also called guaran, is a galactomannan polysaccharide extracted from guar beans that has thickening and stabilizing properties useful in food, feed, and industrial applications. The guar seeds are mechanically dehusked, hydrated, mil ...
futures trading after it said the price quadrupled due to its use in
fracking
Fracking (also known as hydraulic fracturing, hydrofracturing, or hydrofracking) is a well stimulation technique involving the fracturing of bedrock formations by a pressurized liquid. The process involves the high-pressure injection of "frack ...
causing food inflation.
In September 2013, the commission responsibility was moved to the
Ministry of Finance A ministry of finance is a part of the government in most countries that is responsible for matters related to the finance.
Lists of current ministries of finance
Named "Ministry"
* Ministry of Finance (Afghanistan)
* Ministry of Finance and Eco ...
to reflect that futures trading was becoming more and more a financial activity.
Development of the Industry
India has a long history of trading
commodities
In economics, a commodity is an economic good, usually a resource, that has full or substantial fungibility: that is, the market treats instances of the good as equivalent or nearly so with no regard to who produced them.
The price of a comm ...
and considered the pioneer in some forms of
derivatives trading
In finance, a derivative is a contract that ''derives'' its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". Derivatives can be u ...
. The first derivative market was set up in 1875 in Mumbai, where cotton futures was traded. This was followed by establishment of
futures markets
A futures exchange or futures market is a central financial exchange where people can trade standardized futures contracts defined by the exchange. Futures contracts are derivatives contracts to buy or sell specific quantities of a commodity or fi ...
in edible
oilseeds
Vegetable oils, or vegetable fats, are oils extracted from seeds or from other parts of fruits. Like animal fats, vegetable fats are ''mixtures'' of triglycerides. Soybean oil, grape seed oil, and cocoa butter are examples of seed oils, or fat ...
complex, raw
jute
Jute is a long, soft, shiny bast fiber that can be spun into coarse, strong threads. It is produced from flowering plants in the genus ''Corchorus'', which is in the mallow family Malvaceae. The primary source of the fiber is ''Corchorus olit ...
and jute goods and
bullion
Bullion is non-ferrous metal that has been refined to a high standard of elemental purity. The term is ordinarily applied to bulk metal used in the production of coins and especially to precious metals such as gold and silver. It comes from t ...
. 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
The food industry is a complex, global network of diverse businesses that supplies most of the food consumed by the world's population. The food industry today has become highly diversified, with manufacturing ranging from small, traditional, ...
(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
In finance, speculation is the purchase of an asset (a commodity, good (economics), goods, or real estate) with the hope that it will become more valuable shortly. (It can also refer to short sales in which the speculator hopes for a decline i ...
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.
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
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 and 33 other futures.
Commission
The three members of the commission are
* Shri Ramesh Abhishek (Chairman) - Appointed 24 September 2012
* M. Mathisekaran
* Shri Nagendraa Parakh - appointed July 2013
References
External links
Forward Markets Commission Official Websitewww.sebi.gov.in
{{Authority control
Indian commissions and inquiries
India
India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the seventh-largest country by area, the second-most populous country, and the most populous democracy in the world. Bounded by the Indian Ocean on the so ...
Regulatory agencies of India
Government agencies established in 1953
Government agencies of India
Commodity markets in India
Futures markets
Capital markets of India
1953 establishments in Bombay State
2015 disestablishments in India
Government agencies disestablished in 2015