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    History of Commodity Futures in India

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    hsaurav06
    The document summarizes the history and evolution of commodity futures markets in India and their regulation. It discusses how organized futures trading began in the 19th century in Chicago and other exchanges. In India, futures trading began unofficially in 1875 and was officially banned in 1952, but was later reintroduced in the 1980s. It outlines the various committees that shaped commodity market regulations over the years. Currently, India has two national commodity exchanges that are regulated by the Forward Markets Commission through the Forward Contracts Regulation Act of 1952.

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    History of Commodity Futures in India

    Uploaded by

    hsaurav06
    186 views24 pages
    The document summarizes the history and evolution of commodity futures markets in India and their regulation. It discusses how organized futures trading began in the 19th century in Chicago and other exchanges. In India, futures trading began unofficially in 1875 and was officially banned in 1952, but was later reintroduced in the 1980s. It outlines the various committees that shaped commodity market regulations over the years. Currently, India has two national commodity exchanges that are regulated by the Forward Markets Commission through the Forward Contracts Regulation Act of 1952.

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    The document summarizes the history and evolution of commodity futures markets in India and their regulation. It discusses how organized futures trading began in the 19th century in Chicago and other exchanges. In India, futures trading began unofficially in 1875 and was officially banned in 1952, but was later reintroduced in the 1980s. It outlines the various committees that shaped commodity market regulations over the years. Currently, India has two national commodity exchanges that are regulated by the Forward Markets Commission through the Forward Contracts Regulation Act of 1952.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    186 views24 pages

    History of Commodity Futures in India

    Uploaded by

    hsaurav06
    The document summarizes the history and evolution of commodity futures markets in India and their regulation. It discusses how organized futures trading began in the 19th century in Chicago and other exchanges. In India, futures trading began unofficially in 1875 and was officially banned in 1952, but was later reintroduced in the 1980s. It outlines the various committees that shaped commodity market regulations over the years. Currently, India has two national commodity exchanges that are regulated by the Forward Markets Commission through the Forward Contracts Regulation Act of 1952.

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    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    of 24

    History of Commodity Futures in India & its Regulations

    Chapter 4 Overview, Functionality and Governance in Commodities Exchanges

    EVOLUTION OF COMMODITY MARKETS

    Evolution of futures trading Futures in rice in 17th century Japan. Rice tickets and standardised rules for trading. Organized trading in commodities evolved during mid-19th century in Chicago. CBOT, established in 1848, introduced the first traded derivatives contract in agri. commodities. Evolution of various exchanges across the world

    Global Historical Perspective


    Forward markets - in London towards the end of 17th Century

    US, Canada, Japan and Egypt - 18th Century.


    CBOT 1848; standardised futures contracts introduced in 1865

    New York Cotton Exchange started in 1870


    Chicago Mercantile Exchange was set up in 1898 Legalized options trading started in 1934 in the United States

    The Indian Story


    Started as early as 1875 Bombay Cotton Trade Association Fears of unhealthy speculation Commodity options trading and cash settlement of commodity futures banned in 1952 Further blow in 1960s Initiative for agricultural liberalization dawn of a new era for commodities

    THE INDIAN STORY.


    In the 1960s & 1970s the GOI suspended futures trading in several commodities (cotton, jute, oilseeds etc) Khusro committee appointed by the GOI recommended the reintroduction of futures trading in commodities in 1980s Recent history: Suspension/ban on futures trading in Rice, Wheat, Urad & Tur

    Indian Market A trip down the memory lane


    1875 1900 1919 1920 1921 1927 1957 1966 1980 1994 2000 Bombay Cotton Trade Association Gujarat Vapari Mandali (now BCE) Calcutta Hessian Exchange Futures trading in Gold in B.B.A until mid-1950s East India Cotton Association East India Jute trade Association IPSTA Spices Complete ban Khusro Committee- Cotton, Jute, Potatoes K.N Kabra Committee 1994 National Agriculture Policy

    2002-03

    3 National Level Multi Commodity Exchange over 100 Commodities allowed for futures trading

    Regulation is a Maze of Legalities

    Three Tiers of Regulations


    Ministry of Consumer Affairs, Food and Public Distribution

    Forward Markets Commission FC(R) Act 1952 FCRR 1954 Regulations

    Multi Commodity Exchange of India Limited Bye-Laws and Business rules

    Indian Derivatives Sector Overview


    Leading to Government Initiatives to Develop Exchanges

    Ministry of Consumer Affairs


    FMC (Forward Markets Commission) Commodity Exchanges

    National Exchanges (2)

    Regional Exchanges

    MCX

    NCDEX

    NMCE

    NBOT

    20 Other Regional Exchanges

    Forward Contracts Regulation Act, 1952


    Empowers Govt. through FMC for regulation of commodities trading Prohibits Options trading Exempts Non transferable Specific Delivery Contracts from regulation Covers Transferable Specific Delivery contracts as well as hedge contracts Empowers Govt. to regulate specific commodity

    Forward Contracts Regulation Act, 1952..Contd Grant of recognition to exchange (associations) by Govt. Not more than 4 members on Governing bodies of recognized associations (exchanges) Machinery (regulatory body) FMC Repeal of any State Act on Commodities prevailing (transfer of commodities to Union List)

    Forward Markets Commission - Functions


    Advises Govt. in providing recognition to exchanges

    Watchdog of the commodities derivatives markets


    Supplies reports to Govt. on conditions prevailing in the commodities markets Provides recommendations to Govt.

    Forward Markets Commission - Functions


    Inspection of accounts of exchanges and its members

    Approval / amendment of Bye laws, Rules and regulations, Articles of Association and Memorandum of Association of exchanges
    Vital link between commodity exchanges and Govt.

    Approval of contracts before launch

    Evolution of Regulation
    Shri. A. D. Shroff Committee in 1950

    Prof. M. L. Dantwala Committee in 1966


    Prof. A. M. Khusro Committee in 1979 Prof. K. N. Kabra Committee in 1993 World Bank Study (in joint association with UNCTAD) in 1996

    Shroff Committee (1950)


    Draft Bill for Forward Markets Regulation was made

    Inputs received from different commercial organizations Led to passage of the Forward Contract Regulation Act of 1952
    Forward Market Commission (FMC) was established in 1953, dedicated to regulation of forward markets

    Dantwala Committee (1966)


    Review of previous 10 years of FMC Suggest amendments to FCR(A), 1952 Recommended autonomous that FMC be made

    Futures in export commodities to be allowed


    Futures contracts defined

    Options trading not recommended

    Khusro Committee (1979)


    Review role of FMC commodities markets and analyze

    - Not all commodities were to be allowed for futures trading


    - Laid down the possibilities for specific commodities such as Sugar and Silver Condition for trade: Homogeneity of commodity and large supply and demand

    - Exporters to be allowed to hedge

    Kabra Committee (1993)


    Exchanges to enlist more members and be demutualised

    Ensure Capital adequacy norms


    Encourage Computerization

    Vigilance Committee surveyors


    Arbitrators mechanism) (dispute

    and

    Panel

    of

    settlement

    Kabra Committee (1993)..Contd.


    Options and range forwards to be allowed Recognition to exchanges to be permanent (or at least for 5 years) Time limit for ready delivery contracts to be made 30 days from 11 days Futures trading to be allowed for more commodities

    Allow Indian companies to hedge abroad (accepted)

    World Bank and UNCTAD (Joint Study)


    Opening of Agricultural markets would lead to greater exposure to price volatility Price Risk Management Price fluctuations to be sufficiently large (to ensure price discovery) Efficient transfer of risk from Hedgers to Speculators and Arbitragers Standardization of trading practices Storage facilities to be enhanced Encourage participation of large institutional investors Improve internal management of exchanges

    Amendments to FC(R)A, 1952


    Updation of existing definitions & insertion of new definitions Changes in provisions relating to composition & functioning of FMC

    Enhancement of the powers of FMC


    Establishment of Forward Markets Appellate Tribunal along with provision for designating any of the existing Appellate Tribunals under FC(R)A Corporatisation & demutualisation of regional commodity exchanges & setting up of a separate clearing corporation Registration of Intermediaries Enhancement of penal provisions in the FC(R)A Permitting trading in options in commodities

    Effectiveness of Regulation

    Looking Forward
    Currently, Indian commodity exchanges are not allowed to trade index futures. The amendments to FCRA would allow Options to be traded, which would provide depth to the market Finally, Banks , Mutual Funds & FIIs would be allowed to provide maturity to the market

    Disclaimer

    This presentation has been prepared to provide awareness & information purpose only. While every effort has been made to assure the accuracy of the information contained herein, any affirmation of fact in this reference material shall not create an express or implied warranty that any example or description is correct. This material has been made available on the condition that errors or omissions shall not be made the basis for any claims, demands or cause of action. The information provided, has been taken from sources believed to be reliable, but is not guaranteed by the MCX as to accuracy or completeness , and is intended for the purposes of education and information only. The Rules and Regulations of the Exchange should be consulted as the authoritative source on all contract specifications and regulations.

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