Govt proposes amendments in Forward Contracts (Regulation) Act 1952

New Delhi, May 22 (UNI) In order to include some new features in tune with the latest developments in the commodity futures market, the Department of Consumer Affairs has proposed amendments in the Forward Contracts (Regulation) Act, 1952.

The commodity futures market is regulated under the provisions of the Forward Contracts (Regulation) Act, 1952.

The commodity futures trade registered a 274 per cent growth by touching Rs 21.34 lakh crore in 2005-06 as against Rs 5.71 lakh crore during 2004-05.

The volume of trade also went up by 244 per cent to 6,685 lakh tonnes during 2005-06 as compared to 1942.1 lakh tonnes during 2004-05.

The trading volume and value have increased manifold after the three national-level Exchanges were set up. National Multi-Commodity Exchange of India, Ahmedabad (NMCE), started trading in November 2002 and the other two national Exchanges viz. Multi Commodity Exchange of India Ltd, Mumbai (MCX) and National Commodity and Derivatives Exchange Ltd, Mumbai (NCDEX) started trading in November 2003.

Accordingly, Forward Contract (Regulation) Amendment Bill, 2006 has been introduced in the Lok Sabha in March this year. The Bill, inter-alia, seeks to make the amendments which include increase in the maximum number of members of FMC from four to nine, out of whom three are proposed to be whole time members and one Chairman; confer power upon the FMC to levy fees and provide for constitution of FMC General Fund to which all grants, fees and all sums received by the FMC shall be credited except penalty and apply the funds for meeting the expenses of the Commission.

The proposal also seeks provisions for corporatisation and demutalisation of recognised associations in accordance with the scheme to be approved by the FMC; registration of members and intermediaries; allow trading in options and provision for investigation, enforcement and penalty in case of contravention of the provisions of the FCR Act, 1952.

Future prospect of commodity derivative trading is upbeat.

Futures market size (both commodities and securities) relative to Gross Domestic Product (GDP at current prices) in the US is about 90 per cent, in China about 85 per cent, and in Brazil about 200 per cent.

Commodities derivatives trade value relative to GDP (at current price) in India was 5.81 per cent in 2003-04, 20.14 per cent in 2004-05 and it has gone up to 66 per cent during 2005-06.

The commodity futures trade has taken a big leap in the past two years. Likely participation of Banks, Mutual Funds and Foreign Institutional Investors along with introduction of options trading after amendments to FCR Act, 1952, will boost the commodity futures trading further in the coming years.

At present, futures trading is permitted in 103 commodities.

Apart from the three national level Exchanges, there are 21 other regional Exchanges recognised for commodity futures trading.

During 2005-06, permission to trade in furnace oil, crude oil, mentha oil, PVC, polypropylene and natural gas was granted. Onion has also been recently notified for futures trading, according to an official statement releaed here today.

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