Futures Trading Commodit

 

FUTURES TRADING IN COMMODITY EXCHANGES AND FORWARD MARKETS COMMISSION.
1. Futures trading perform two important functions of price discovery and price risk management with reference to the given commodity. It is useful to all segments of the economy. It is useful to the producer because he can get an idea of the price likely to prevail at a future point of time and therefore can decide between various competing commodities, the best that suits him. It enables the consumer in that he gets an idea of the price at which the commodity would be available at a future point of time. He can do proper costing and also cover his purchases by making forward contracts. Futures trading is very useful to the exporters as it provides an advance indication of the price likely to prevail and thereby help the exporter in quoting a realistic price and thereby secure export contract in a competitive market. Having entered into an export contract, it enables him to hedge his risk by operating in futures market.
 
2. Forward/futures trading involves a passage of time between entering into a contract and its performance making thereby the contracts susceptible to risks, uncertainties, etc. Hence the need for the regulatory functions to be exercised by the Forward Markets Commission (FMC), which is the Regulator established under the provisions of Forward Contracts (Regulation) Act, 1952.
 
3. At present, futures trading is permitted in 103 commodities (Annexure-I). Apart from the three national level Exchanges, there are 21 other regional Exchanges recognised for commodity futures trading (Annexure-II). The trading volume and value in the past two years have increased manifold. During 2005-06, permission to trade in furnace oil, crude oil, mentha oil, PVC, polypropylene and natural gas was granted. Onion has also been notified for futures trading on 26.4.2006.
 
4.. Overall growth
During 2005-06, the total value of commodity futures trade was Rs. 21.34 lakh crore as compared to Rs. 5.71 lakh crore during 2004-05 showing an increase of 274%. The volume of trade has also gone up to 6685 lakh tonnes during 2005-06 as compared to 1942 lakh tonnes during 2004-05. The trade volume has also gone up by 244% during 2005-2006.
 
5. The trading volume and value have increased manifold after the three national –level Exchanges were set up. Department of Consumer Affairs granted recognition to these Exchanges as indicated below: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. The following table shows the increase in volume and value of trading in commodity futures since the setting up of these national Exchanges.

Commodity Futures Trading Value and Volume since 2001-02

 

2002-03

2003-04

2004-05

2005-06

Volume of Trading (in lakh tonnes)

314.4
(44.4)*

492.9
(57.7)*

1,942.1
(294)*

6,685.09
(244)*

Value of trading (Rs. in crore)

66,530
(92.8)*

1,29,363
(94.4)*

5,71,759
(341.9)*

21,34,471
(274)*

*Figures in parenthesis are % change over previous year.
 
6. The commodity futures market is regulated under the provisions of the Forward Contracts (Regulation) Act, 1952. In order to include some new features that are in tune with the latest developments in the commodity futures market, this Department has proposed amendments in the Forward Contracts (Regulation) Act, 1952. Accordingly, Forward Contracts (Regulation) Amendment Bill, 2006 has been introduced in the Lok Sabha on 21.03.2006. The Bill, inter-alia, seeks to make the following amendments :--
increase the maximum number of members of FMC from four to nine out of which three to be whole time members and a Chairman;
confer power upon the FMC to levy fees;
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;
make provisions for corporatisation and demutualisation of recognised associations in accordance with the scheme to be approved by the FMC;
make provisions for registration of members and intermediaries;
allow trading in options;
make provision for investigation, enforcement and penalty in case of contravention of the provisions of the FCR Act, 1952;
 
7.Future prospect
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%, in China about 85%, and in Brazil about 200%. Commodities derivatives trade value relative to GDP (at current price) in India was 5.81 % in 2003-04, 20.14% in 2004-05 and it has gone up to 66 % 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.
Annexure-II
 Exchanges and Commodities in which futures contracts are traded.

   No.

Exchange

COMMODITY¨

1.

India Pepper & Spice Trade Association, Kochi (IPSTA)

Pepper (both domestic and international contracts)

2.

Vijai Beopar Chambers Ltd.,
Muzaffarnagar

Gur, Mustard seed

3.

Rajdhani Oils & Oilseeds Exchange Ltd., Delhi

Gur, Mustard seed its oil & oilcake

4.

Bhatinda Om & Oil Exchange Ltd.,
Bhatinda

Gur

5.

The Chamber of Commerce, Hapur

Gur , Potatoes and Mustard seed

6.

The Meerut Agro Commodities Exchange Ltd., Meerut

Gur

7.

The Bombay Commodity Exchange Ltd., Mumbai

Oilseed Complex
* Castor oil international contracts

8.

Rajkot Seeds, Oil & Bullion Merchants Association, Rajkot

Castor seed, Groundnut, its oil & cake, cottonseed, its oil & cake, cotton (kapas) and RBD palmolein.

9.

The Ahmedabad Commodity Exchange, Ahmedabad

Castorseed, cottonseed, its oil and oilcake

10.

The East India Jute & Hessian Exchange Ltd., Calcutta

Hessian & Sacking

11.

The East India Cotton Association Ltd., Mumbai

Cotton

12.

The Spices & Oilseeds Exchange Ltd., Sangli.

Turmeric

13.

National Board of Trade, Indore

Soya seed, Soyaoil and Soya meals. Rapeseed/Mustardseed its oil and oilcake  and RBD Palmolien

14.

The First Commodities Exchange of India Ltd., Kochi

 Copra/coconut, its oil & oilcake

15.

Central India Commercial Exchange Ltd., Gwalior

Gur and Mustard seed

16.

E-sugar India Ltd., Mumbai

Sugar

**17

National Multi-Commodity Exchange of India Ltd., Ahmedabad

Several Commodities (Please see the site of the Exchange at www.nmce.com)

18

Surendranagar Cotton Oil & Oilseeds , Surendranagar

Cotton, Cottonseed, Kapas

19

E-Commodities Ltd., New Delhi

Sugar (trading yet to commence)

20**

National Commodity & Derivatives Exchange Ltd., Mumbai

Several Commodities (Please see the site of the Exchange at www.ncdex.com)

21**

Multi Commodity Exchange  Ltd., Mumbai

Several Commodities (Please see the site of the Exchange at www.mcxindia.com)

22

Bikaner commodity Exchange Ltd., Bikaner

Mustard seed its oil & oilcake, Gram. Guar seed. Guar Gum

23

Haryana Commodities Ltd., Hissar

Mustard seed complex

24

Bullion Association Ltd., Jaipur

Mustard seed Complex

¨ For an update of the Commodity position please see the website of the FMC (www.fmc.gov.in) or the site of the Exchange.

** Nation-wide Multi Commodity Exchange

 Annexure-I

LIST OF COMMODITIES NOTIFIED UNDER SECTION 15 OF THE F.C.(R.) ACT

 

 

Sl.No

COMMODITY

Fibres and Manufactures

1

Art Silk Yarn

2

Cotton Cloth

3

Cotton pods

4

Cotton Yarn

5

Indian Cotton (Full pressed, half pressed or loose)

6

Jute goods (Hessian and Sackings and cloth and /or bags, twines and/or yarns mfd by any of the mills and/or any other manufacturers of whatever nature made from jute)

7

Kapas

8

Raw Jute (including Mesta)

9

Staple Fibre Yarn

FOODGRAINS AND PULSES

10

Arhar Chuni

11

Bajra

12

Barley

13

Gram

14

Gram Dal

15

Guar

16

Jowar

17

Kulthi

18

Lakh (Khesari)

19

Maize

20

Masur

21

Moth

22

Mung

23

Mung Chuni

24

Mung dal

25

Peas

26

Ragi

27

Rice or Paddy

28

Small Millets (Kodan Kulti, Kodra, Korra, Vargu, Sawan, Rala, Kakun, Samai, Vari & Banti)

29

Tur Dal (Arhar Dal)

30

Tur(Arhar)

31

Urad (Mash)

32

Urad dal

33

Wheat

Metals

34

Copper, Zinc, Lead or Tin

35

Gold

36

Silver

37

Silver Coins

38

Celeryseed

39

Copra Oil/Coconut Oil

40

Copra Oilcake/Coconut Oilcake

41

Copra/Coconut

42

Cottonseed

43

Cottonseed Oil

44

Cottonseed Oilcake

45

CPO Refined

46

Crude Palm Oil

47

Crude Palm Olive

48

Groundnut

49

Groundnut Oil

50

Groundnut Oilcake

51

Linseed

52

Linseed oil

53

Linseed Oilcake

54

Rapeseed Oil/Mustard Oil

55

Rapeseed Oilcake/ Mustardseed Oilcake

56

Rapeseed/Mustardseed

57

RBD Palmolein

58

Rice Bran

59

Rice Bran Oil

60

Rice Bran Oilcake

61

Safflower

62

Safflower Oil

63

Safflower Oilcake

64

Sesamum (Til or Jiljilli)

65

Sesamum Oil

66

Sesamum Oilcake

67

Soy meal

68

Soy Oil

69

Soybean

70

Sunflower Oil

71

Sunflower Oilcake

72

Sunflower Seed

Spices

73

Aniseed

74

Betelnuts

75

Cardamom

76

Chillies

77

Cinnamon

78

Cloves

79

Coriander seed

80

Ginger

81

Methi

82

Nutmegs

83

Pepper

84

Turmeric

Others

85

Camphor

86

Castor seed

87

Chara or Berseem (including charaseed or berseemseed)

88

Crude Oil

89

Gram Husk (Gram Chilka)

90

Gur

91

Khandsari Sugar

92

Polymer

93

Potato

94

Rubber

95

Seedlac

96

Shellac

97

Sugar

98

Furnace Oil

99

Ethanol

100

Coking Coal

101

Electricity

102

Mentha oil

103

Natural Gas