1. GOVERNMENT OF INDIA
FORWARD MARKETS COMMISSION
MINISTRY OF CONSUMER AFFAIRS
FOOD AND PUBLIC DISTRIBUTION
DEPARTMENT OF CONSUMER AFFAIRS
ANNUAL REPORT 2010-11
EVEREST, 3RD FLOOR. 100, MARINE DRIVE,
MUMBAI 400 002
OCTOBER 2011

2. CONTENTS
Chapter No. Contents Page No
I Introduction 1
II Developments in the Commodity Derivative 12
Market
III Commodity Futures Market in 2010-11 – A 22
Review
IV Action Against Illegal Forward Trading 43
V Administration and Budget 46
ANNEXURES
Annexure Details Page. No
No.
I List of Commodities Notified Under Section 15 50
of the F. C. (R.) Act, 1952.
II List of Exchanges. 51
III-A Trading Permissions Granted to the National 53
Exchanges.
III-B Trading Permissions Granted to the Regional 57
Exchanges.
IV Open Interest Limits in Agri commodity 61
contracts.
V Open Interest Limits in Non-Agri commodity 62
contracts.
VI Guidelines for fixation of Due Date Rate for 63
commodity specific (Regional) exchanges.
VII-A Details of Awareness Programmes. 64
VII-B State wise summary of awareness programmes 98
VIII Details of Capacity Building Programmes 99

3. CHAPTER 1
Commodity Futures Markets
INTRODUCTION
History:
1.1 The commodity futures market in India dates back to more than a century. The first
organized futures market was established in 1875, under the name and style of 'Bombay Cotton
Trade Association' to trade in cotton derivative contracts. This was followed by institutions for
futures trading in oilseeds, foodgrains, etc. The futures market in India underwent rapid growth
between the period of First and Second World Wars. As a result, before the outbreak of the
Second World War, a large number of commodity exchanges trading futures contracts in several
commodities like cotton, groundnut, groundnut oil, raw jute, jute goods, Castorseed, wheat, rice,
sugar, precious metals like gold and silver were flourishing throughout the country. In view of the
delicate supply situation of major commodities in the backdrop of war efforts mobilization,
futures trading came to be prohibited during the Second World War under the Defence of India
Act. After independence, especially in the second half of the 1950s and first half of 1960s, the
commodity futures trading again picked up and there were thriving commodity markets.
However, in mid-1960s, commodity futures trading in most of the commodities came to be
banned and futures trading continued only in two minor commodities, viz, pepper and turmeric.
In the 1980s, the futures trading in some commodities like potato, Castorseed, and gur (jaggery)
was permitted. In 1992, futures trading in hessian were permitted; in April 1999 futures trading
in various edible oilseed complexes were permitted and in May 2001 futures trading in Sugar
were permitted. The National Agricultural Policy announced in July 2000 recognised the positive
role of forward and futures market in price discovery and price risk management. In pursuance
thereof, Government of India, by a notification dated 1.4.2003, permitted additional 54
commodities for futures trading. With the issue of this notification, prohibition on futures trading
has been completely withdrawn. The mechanism of forward trading has actually developed and
advanced considerably in the major trading nations of the world, like USA, UK, France, Japan,
etc. In these countries, forward trading has been permitted in many new items/services including
financial futures, shipping freights and interest rates etc. In comparison, commodity futures
markets in India are much simpler and are at present dealing in single futures contracts in
commodities.
Economic Functions:
1. 2 In a free market economy, Futures trading performs two important economic functions,
viz., price discovery and price risk management. Such trading in commodities is useful to all
sectors of the economy. The forward prices give advance signals of an imbalance between
demand and supply. This helps the government and the private sector to make plans and
arrangements in a shortage situation for timely imports, instead of having to rush in for such
imports in a crisis-like situation when the prices are already high. This ensures availability of
adequate supplies and averts spurt in prices. Similarly, in a situation of a bumper crop, the early
price signals emitted by futures market help the importers to defer or stagger their imports and
exporters to plan exports, which avoid glut situations and ensures remunerative prices to the
producers. At the same time, it enables the importers to hedge their position against commitments
made for import and exporters to hedge their export commitments. As a result, the export
competitiveness of the country improves.
Benefits to the farmers and other stakeholders:
1. 3 Farmers and growers also benefit through the price signals emitted by the futures markets
even though they may not directly participate in the futures market. The futures markets, through
advance price discovery lead to a shift in sale-purchase patterns during harvest and lean seasons
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4. and thereby facilitate reduction in the amplitude of seasonal price variation and help the farmer
realize somewhat better price at the time of harvest. These price signals help the farmer in
planning his cultivation in advance as well as to determine the kind of crop which he should
prefer to raise. These signals also help him in fine tuning his marketing strategy after the harvest.
Empowered with the price information, the farmer is able to avoid excess sale immediately after
the harvest and is also able to bargain for better prices from trade in the mandi. By providing the
manufacturers and the bulk consumers a mechanism for covering price-risks, the futures market
induces them to pay higher price to the producers, as the need to pass on the price-risk to farmers
is obviated. The manufacturers are able to hedge their requirement of the raw materials and as
also their finished products. This results in greater competition in the market and ensures viability
of the manufacturing units.
Suitability of a commodity for futures trading:
1.4 Futures trading can be organized in those commodities/ markets which display some
special features. The concerned commodity should satisfy certain criteria as listed below:
a) the commodity should be homogenous in nature, i.e., the concerned commodity
should be capable of being classified into well identifiable varieties and the price of
each variety should have some parity with the price of the other varieties;
b) the commodity must be capable of being standardized into identifiable grades;
c) supply and demand for the commodity should be large and there should be a large
number of suppliers as well as consumers;
d) the commodity should flow naturally to the market without restraints either of
government or of private agencies;
e) there should be some degree of uncertainty either regarding the supply or the
consumption or regarding both supply and consumption,
f) the commodity should be capable of storage over a reasonable period of time.
Participants in the Commodity Futures Markets:
1. 5 There are three broad categories of participants in the futures markets, namely, hedgers,
speculators and arbitrageurs. Hedgers are those who have an underlying interest in the specific
delivery or ready delivery contracts and are using futures market to insure themselves against
adverse price fluctuations. Examples could be stockists, exporters, producers, etc. They require
some people who are prepared to accept the counter-party position. Speculators are those who
may not have an interest in the ready contracts, i.e., the underlying commodity, etc. but see an
opportunity of price movement favourable to them. They are prepared to assume the risk which
the hedgers are trying to transfer in the futures market. They provide depth and liquidity to the
market. While some hedgers from demand and supply side may find matching transactions, they
by themselves cannot provide sufficient liquidity and depth to the market. Hence, the speculators
who are essentially expert market analysts take on the risk of the hedgers for future profits and
thereby provide a useful economic function and are an integral part of the futures market. It
would not be wrong to say that in the absence of speculators, the market will not be liquid and
may at times collapse. Arbitrageurs are those who make simultaneous sale and purchase in two
markets so as to take benefit of price imperfections. In the process they help, remove the price
imperfections in different markets, For example, the arbitrageurs help in bringing the prices of
contracts of different months in a commodity in alignment.
System of Regulation of Forward Trading:
1.6 Regulation of forward trading is done through a three tier regulatory structure, viz., the
Central Government, Forward Markets Commission and the Recognized Commodity Exchanges
/ Associations.
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5. • The Central Government has the powers to legislate on the subject of forward trading
in commodities. Presently, the subject is dealt with by the Ministry of Consumer
Affairs, Food and public Distribution in the Central Government. The Central
Government broadly determines the policy relating to areas such as identification of
commodities as well as the territorial area in which futures / forward trading can be
permitted and giving recognition to the Exchange / Association through which such
trading is to be permitted.
• The Forward Markets Commission performs the role of approving the Rules and
Regulations of the Exchange accordance to which trading is to be conducted, accords
permission for commencement of trading in different contracts, monitors market
conditions continuously and takes remedial measures wherever necessary.
• The Recognized Exchange / Associations provide the framework of Rules and
Regulations for conduct of trading, indicate the place where the trading can be
conducted, report, record, execute & settle contracts, provide forum for exchange of
documents and payments, etc.
Forward Contracts (Regulation) Act:
1. 7 The Commodity Future Markets are regulated according to the provisions of Forward
Contracts (Regulation) Act 1952. The Act broadly divides commodities into 3 categories, i.e.
commodities in which forward trading is prohibited, commodities in which forward trading
is regulated and residuary commodities. Under Section 17 of the FC(R) Act, 1952, the
Government has powers to notify commodities, in which forward trading is prohibited in whole
or part of India. Any forward trading in such commodities in the notified area is illegal and any
person who contravenes the provisions of section 17 shall be liable to penal action. Under
Section 15, Government has powers to notify commodities in which forward trading is regulated
as also the area in which such regulation will be in force. Once a commodity is notified under
section 15, the forward trading in such contracts (other than Non-transferable Specific Delivery
Contracts) can be entered into only between members of the recognized association or through or
with any such member. Contracts other than these are illegal. Section 6 of the Act provides
powers to the Central Government to grant recognition to an association for organizing forward
contracts in the commodity which is notified under Section 15. Such recognition may be for a
specified period or may remain in force till revoked under Section 7 of the Act. Section 18(1)
exempts the Non-Transferable Specific Delivery Contracts from the purview of regulation.
However, under Section 18(3) of the Act, the Government has powers to prohibit or regulate the
non-transferable specific delivery contracts in commodities also by issue of a notification. Such
notifications may apply for the whole of the country or the specified part of the country. Trading
in commodities where non-transferable specific delivery contracts are prohibited is illegal and
any person who does such illegal trading shall be liable to penal action. Trading in non-
transferable specific delivery contracts in respect of regulated commodities has to be through
recognized associations just as in the case of other forward contracts. The commodities that are
notified neither under section 15 nor under section 17 of the Act are in common parlance referred
to as free commodities. For organized forward trading in such commodities, the concerned
Association or Exchange has to get a certificate of registration under Section 14B of the Act from
the Forward Markets Commission.
1. 8 The Act defines three types of contracts i.e. ready delivery contracts, forward contracts
and options in goods.
1.8.1 Ready delivery contracts are contracts for delivery of goods and payment of price
therefor where both the delivery and payment are completed within 11 days from the date of the
contract. Such contracts are outside the purview of the Act.
1.8.2 Forward Contracts, on the other hand, are contracts for delivery of goods where
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6. delivery or payment or both takes place after 11 days from the date of contract or where the
contract is performed by any other means as a result of which actual tendering of goods for the
payment of the full price therefor is dispensed with.
1.8.3 The forward contracts are further of two types, viz., specific delivery contracts and
'other than specific delivery contracts'. The specific delivery contracts are those where
delivery of goods is mandatory though delivery takes place after a period longer than 11 days.
Specific delivery contracts are essentially merchandising contracts entered into by the parties for
actual transactions in the underlying commodity and terms of contract may be drawn to meet
specific needs of parties as against standardized contracts like terms in futures contracts.
1.8.4 The specific delivery contracts are again of two sub-types viz., the transferable variety
where rights and obligations under the contracts are capable of being transferred and the non-
transferable variety where rights and obligations are not transferable.
1.8.5 Forward contracts other than specific delivery contracts are what are generally known as
'futures contracts' though the Act does not specifically define the futures contracts. Such
contracts can be performed either by delivery of goods and payment thereof or by entering into
offsetting contracts resulting into payment or receipt of amount based on the difference between
the rate of entering into contract and the rate of offsetting contract. Futures contracts are usually
standardized contracts where the quantity, quality, date of maturity, place of delivery are all
standardized and the parties to the contract only decide on the price and the number of units to be
traded. Futures contracts are entered into through the Commodity Exchanges.
1.8.6 ‘Options’ in goods means an agreement, by whatever name called, for the purchase or
sale of a right to buy or sell, or a right to buy and sell, goods in future and includes a put, a call, or
a put and call in goods. Options in goods are prohibited under the present Act. An option
contract is the right (but not the obligation) to purchase or sell a certain commodity at a pre-
arranged price (the "strike price") on or before a specified date. For this contract, the buyer or
seller of the option has to pay a price to his counterpart at the time of contracting, which is called
the "premium; if the option is not used, the premium is the maximum cost involved. When prices
move unfavorably, this right will not be exercised, and therefore, the purchase of options provides
protection against unfavourable price movements, while permitting to profit from favourable
ones. Option can give the right to buy or sell a certain amount of physical commodity, or, more
commonly, they can give the right to buy or sell a futures contract.
1.9 Working of Forward Markets Commission:
1.9.1 Forward Markets Commission is a statutory body set up under Forward Contracts
(Regulation) Act, 1952. The Commission functions under the administrative control of the
Ministry of Consumer Affairs, Food & Public Distribution, Department of Consumer Affairs, and
Government of India. The functions of the FMC are dealt with in section 4 of the Forward
Contracts (Regulation) Act, 1952 [F.C(R) Act, 1952] which is given below:
i. to advise the Central Government in respect of the recognition of, or the withdrawal of
recognition from any association or in respect of any other matter arising out of the
administration of the FC(R) Act, 1952.
ii. 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 FC(R)
Act, 1952.
iii. to collect and whenever the Commission thinks it necessary, publish information
regarding the trading conditions in respect of goods to which any of the provisions of this
Act is made applicable, including information regarding supply, demand and prices and
to submit to the Central Government periodical reports on the operation of the Act, and
the working of forward markets relating to such goods.
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7. iv. to make recommendations generally, with a view to improving the organization and the
working of forward markets.
v. 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 and
vi. to perform such other duties and exercise such other powers as may be assigned to the
Commission by or under the FC(R) Act, 1952 or as may be prescribed.
1.9.2 Section 4A of the FC (R) Act, 1952 deals with the powers of the Commission which
are as follows:
The Commission have all the powers of a civil court under the Code of Civil Procedure
1908 (5 of 1908) while trying a suit in respect of the following matters:
● Summoning and enforcing the attendance of any person and examining him on
oath;
● Requiring the discovery and production of any documents;
● Receiving evidence on affidavits;
● Requisitioning any public record or copy thereof from any office;
● Any other matter which may be prescribed.
1.9.3 The Commission, thus, is a statutory authority entrusted with regulatory functions under
the Act. The Commission consists of a Chairman and two members. Presently, Shri. Ramesh
Abhishek, IAS is officiating as the Chairman of the Commission. Shri. D. S. Kolamkar, IES is the
Member of the Commission. It has its headquarters at Mumbai and a Regional Office at Kolkata.
Forward Markets Commission has 5 Divisions to carry out various tasks. These Divisions were
formed on 1st August 2005 in order to streamline the work on a functional basis.
i) Markets, Trading and Development (Market Division)
ii) Market Intelligence, Monitoring & Surveillance ( M & S Division )
iii) Awareness, Training and Intermediary Registration and IT
(IR Division)
iv) Investigation, Vigilance and Legal Affairs (Legal Affairs Division)
v) Commission Secretariat including HR, Administration and Finance, Grievances
(Administration Division)
Each Division is headed by a Director, assisted by Deputy Directors, Assistant Directors,
Economic Officers and Junior Research Assistants.
COMMISSION
Division – I Division – II Division – III Division-IV
Division of Market Investigation, Division V
Awareness, Commission
Markets, Intelligence, Training and Vigilance and
Trading and Monitoring & Legal Affairs Secretariat
Intermediary including HR,
Development Surveillance Registration Division
(Market (M& S (Legal Affairs Administratio
and IT n & Finance
Division ) Division) Division)
Grievances
(ADM
Division)
Regulatory Tools:
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8. 1.10 Futures trading has the risk of being misused by unscrupulous elements. In order to
safeguard the market against such elements, regulatory measures as under are prescribed by the
Forward Markets Commission:-
(a) Limit on open position of an individual operator as well as member, to prevent over
trading;
(b) Limit on daily price fluctuation, to prevent abrupt upswing or downswing in prices;
(c) Additional Margins payable on outstanding purchases and sales to contain high
volatility in prices;
(d) Special margin deposits to be collected on outstanding purchases or sales, to curb
excessive concentration of position;
(e) During times of shortages, the Commission may even take more stringent steps like
skipping trading in certain deliveries of the contract, closing the markets for a
specified period and even closing out the contract to overcome emergency
situations.
1.11 Major Initiatives taken by the Government / Commission since liberalization of the
market.
Prohibition on futures trading lifted in all the commodities on 1st April 2003.
Three Multi-Commodity electronic Exchanges, i.e., National Multi Commodity
Exchange, Ahmedabad (10.1.2003), Multi Commodity Exchange, Mumbai (26.9.2003)
and National Commodity and Derivative Exchange, Mumbai (20.11.2003) were granted
recognition as 'National' Exchanges during 2003.
Fourth National Exchange viz. Indian Commodity Exchange Limited (ICEX) was
granted recognition on the 9th October 2009 on permanent basis.
On 14th May 2008, the Commission issued guidelines on setting up of new National
Multi Commodity Exchanges to further strengthen the infrastructure in Commodity
Derivative Market. Inter alia, it prescribed the framework for share holding pattern of a
new National Multi Commodity Exchang e. A fifth National Exchanges namely, ACE
Commodity and Derivative Exchanges was granted recognition on 10.8.2010. ACE
became a National Exchange by upgrading itself from a Regional Exchange.
Improvement of Regulatory Framework and Re-structuring of Forward Markets
Commission. The F.C (R) Act enacted in 1952 does not fully meet the regulatory needs
of a modern electronic market. Hence, the regulatory framework needs to be overhauled
to bring it on par with those of similar regulators like SEBI, etc. and also to restructure
and strengthen the Forward Markets Commission to meet the regulatory challenges.
Hence, a Bill proposing amendments to F.C (R) Act has been introduced in the
Parliement which, inter alia, provides for –
• Defining forward contract so as to include other commodity derivatives, and
defining of intermediaries, etc.
• Revised composition and mandate of FMC.
• Financial and administrative autonomy of the Commission so as to provide for
recruitment of its officers and its employees, management of the affairs to vest
with the Chairman, accounts and audits, and creation of an ‘FMC General Fund’
to which all receivables except penalties will be credited. The FMC General
Fund shall be used for the management of the affairs of the Commission and to
enforce the provisions of the F.C(R) Act, 1952.
• Levying of fees on intermediaries to finance the Commission’s activities.
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9. • Allowing trading of options and other derivatives in goods.
• Provide for corporatisation and demutualization of commodity exchanges.
• Strengthening the penal provisions.
• Constitution of Forward Markets Appellate Tribunal.
• Provision for grant by the Central Government to meet transitional financial
needs of FMC.
1.12 Major Initiatives taken by Forward Markets Commission during 2010-11.
• The Commodity Futures Market has witnessed rapid growth since the opening of
the market in 2002. National Commodity Exchanges have completed 7 years of
their operation in Commodity Derivatives market. The Commission from time to
time reviewed the market and suggested some amendments to the bye-laws of the
Exchanges; issued guidelines and directives to these Exchanges for better
governance, transparency and investor confidence.
• Notified ‘Iron Ore’ u/s 15 of the Forward Contracts (Regulation) Act, 1952 vide
notification dated 29th September, 2010.
• The Government amended the guidelines on the equity structure of Multi
Commodity Exchanges to be adopted after completing five years of their
operation. With this amendment, any single Stock Exchange along with the
persons acting in concert shall not hold more than 5% of the subscribed and paid
up equity capital of the said National Exchange.
• Amended guidelines for granting recognition to new Commodity Exchanges
under the Forward Contracts (Regulation) Act, 1952 putting restriction on
sharholding of single stock exchange to 5% of the subscribed and paid up equity
capital of national commodity exchange. The cumulative shareholding of Stock
Exchanges in the relevant National Commodity Exchange shall not be more than
10%.
• Issued guidelines for members of the Commodity Exchanges on 21st June 2010
for setting up Joint Ventures/ wholly owned subsidiaries abroad.
• In order to streamline regulation of intermediaries, the Commission issued
directives to the Exchanges to discontinue the system of sub-brokers and switch
over to the system of Authorised Person (AP), for giving market access to clients
trading in these markets through APs.
• To ensure market and financial integrity, the Commission issued directives to the
National Exchanges not to allow execution of trades without uploading the
Unique Client Code (UCC) details.
• Issued revised directives to the exchanges exempting delivery margins for the
market participants who have moved their goods to the Exchange warehouse.
• Issued revised directives to the National Exchanges for fixing the price limit on
the first day of the contract.
• Issued Directives on fixing Price limit on the first day of new contracts.
• Issued guidelines on fixation of Due Date Rates.
• On the recommendations of the Forward Markets Commission, the Ministry of
Consumer Affairs, Food and Public Distribution, Government of India, vide
Notification dated 10th August 2010, granted recognition to the Ahmedabad
Commodity Exchange, now rechristened as ACE Derivatives & Commodity
Exchange Limited (ACE) as a Nationwide Multi Commodity Exchange on
permanent basis in respect of forward contracts in all the commodities to which
Section 15 of the Forward Contracts (Regulation) Act, is applicable. With the
grant of recognition to this exchange the total number of national exchanges has
become Five. These exchanges can offer futures contracts in all the commodities
subject to the approval of the Commission. Besides these, 16 other exchanges
generally referred to as Regional Exchanges, are recognized for futures trading in
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10. specific commodities.
• The Central Government granted in-principle approval to the Universal
Commodity Exchange Limited (UCX), Mumbai, on 25th August 2010 as a
Nationwide Multi Commodity Exchange, subject to the fulfilling of
commitments made / undertakings given to the Commission within the stipulated
time.
1.13 Collaboration with International Regulators:
In order to strengthen co-operation with international regulators, the FMC took steps for
collaborating with regulators in other countries. FMC is also an associate member of IOSCO, an
international organization of Security and Commodities Market Regulators. In addition, FMC has
also signed Memorandum of Understanding with the United States Commodity Futures Trading
Commission (USCFTC) and the China Securities Regulatory Commission (CSRC). The
Commission, in January 2010, had signed MOU with the Commissao de Valores Mobiliarios –
CVM (Securities and Exchange Commission of Brazil), Brazil.
1.14 Developmental Initiatives taken by Forward Markets Commission
The Commission has taken the following steps in recent years to ensure that the markets
are broad based and its benefits reach all the stakeholders of the Commodity Markets.
• Increasing the awareness level of different categories of stakeholders
especially farmers to make them aware of the existence of as well as benefits
from the futures markets, sensitization of policy makers and capacity building
in the commodity sector.
• Working on various models of “Aggregation” to enable the farmers to take the
benefit of actual hedging on the Commodity Exchanges to manage their price
risks.
• Working on a project of Price Dissemination through APMCs and other centers
to empower the farmers with price information.
• Meeting with various stakeholders to understand their difficulties, problems
and felt needs so as to align/ design policies to feasible/ desirable objectives.
1.14.1. Creation of Awareness:
Creation of awareness amongst the farmers, related bodies and organizations including
the ones which could be potential hedgers / aggregators and other market constituents has been
one of the major activities of the Commission. During 2010-11, 829 awareness programmes were
organized for various stakeholders of the commodity futures market. Of this, 486 programmes
were held exclusively for farmers. In the previous year, (2009-10) 515 awareness programmes
were held, of which 423 were exclusively for the farmers. The programmes were conducted at
different locations all over the country. These awareness programmes were attended by different
category of market participants ranging from farmers, traders and members of Commodity
exchanges to bankers, cooperative personnel staff and students of Universities, Government
functionaries, warehouse professionals, agricultural extension workers, makers etc. These
awareness programmes have resulted in creating awareness among the various constituents about
commodity futures trading and the benefits thereof. The programmes were organized in
association with various organizations/universities having connectivity with the farmers, viz.
agricultural universities, NABCONS , farmer cooperatives and federations, GSKs, National &
Regional Base Commodity Exchanges, etc.
1.14.2 Sensitization of officers involved in policy making for Agricultural Sector:
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11. Sensitization programmes have been organized by the Commission for senior State
Government and Central Government functionaries. During the year, sensitization programme
was organized at Noida Campus of IIM, Lucknow as against 5 programmes held in the previous
year. The objective of the programmes was to create awareness among the senior Central
Government and State Government officers from the Departments of Civil Supplies, Agriculture,
Cooperation, Marketing Federations, etc., about the concept and economic functions of the
futures market the possible role these can play to promote and facilitate participation by various
stakeholders, especially farmers, in the commodity futures market, and the use of price
information emanating from the futures market in their related policy making decisions.
1.14.3. Capacity Building /Training Programmes
FMC has been organizing training programmes for market constituents and their officers
as part of its capacity building endeavors. The capacity building efforts of the Forward Markets
Commission are meant to complement the awareness creation activities of the Commission.
Training on Commodity Futures Market is being imparted to policy makers, university staff,
students, extension workers, farmer federations, Cooperatives, banks and officers of agencies
working at the grass root level to enable them to educate market participants about the economic
significance of the market and means of participation in the market. Special training programmes
are being organized for trainers who may take up the responsibility of educating the farmers
about the futures market.
In the year 2010-11, FMC organized 79 capacity building programmes. The training
programmes, workshops and seminars were organized for the benefit of the functionaries of the
above organizations through various Institutes such as VAMNICOM, Pune; HAFED, Punjab
Agriculture University, Topic, Gurgaon, NIAM Jaipur; Pondicherry University, Tamil Nadu
Agricultural University, Coimbatore; Institute of Cooperative Management, Jaipur, NABCONS,
etc. Three Capacity Building Programmes were held for FMC officers and staff to strengthen
their capabilities in administration and regulation of market through Regional Training Centre,
Govt. of India Mumbai, Bombay Stock Exchange & Research Development Association, and
Jaipur. The programmes are expected to train functionaries of related organizations with a strong
rural presence and working directly or indirectly with farmers, so that the message of futures
market is taken to the grassroots- producers, processors and traders.
1.14.4 Promotion of commodity related education and developing a talent pool:
Due to the decline in number of persons having domain expertise over 2 generations on
account of ban on futures trading in the 1960s through the 1980s, at this juncture, the subject of
commodity futures trading is in a way a new subject in India. FMC and the Department of
Consumer Affairs had taken up the matter of introducing courses on Commodity Futures in
Universities and Management Institutes, with the Ministry of Human Resources Development,
Government of India.
The Commission is organizing awareness programmes for faculty and students of Agri-
university, management institutes of other colleges in the area of commodity future market to
create awareness and interest in the subject and also expose them to the employment opportunity
available in the sectors.
During 2009-10, the Commission provided summer internship to twelve students from
KIIT School of Management, Bhubaneswar, Orissa (2), the Indian Institute of Management,
Ahmedabad (IIM-A) (4), the IIT, Mumbai (1), the Department of Management Sciences,
University of Pune (1), Mahatma Gandhi Institute of Management, Sikar, Rajasthan (1) and N. L.
Dalmia Institute of Management Studies and Research, Mumbai (3).
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12. 1.14.5 International training/conferences/meetings
During the year 2010-11, the officers of the Commission and the officers of the
Department of Consumer Affairs were nominated for various international training programmes,
and also attended international conferences/ meetings organized by International Organisations/
Regulatory bodies like IOSCO, FIA, CFTC in different countries of the world.
1.14.6 Exhibitions :
The Forward Markets Commission, in association with the National Exchanges,
participated in the Indian Science Congress Expo at SRM University, Chennai from 3-7 January
2011.
The Commission, in association with the National Exchanges also participated in
AGROVISION 2011 organized at Nagpur from 4-7 March, 2011 by the Vidarbha Economic
Development Council (VEDC). The participation in these Exhibitions was by way of setting up a
stall on benefits of commodity futures market to farmers. The stall attracted a lot of visitors and
helped in removing the mis-perceptions about the functioning and the impact of the futures
market.
1.14.7 Meetings with Stakeholders
The Commission conducted various meetings with different category of stakeholders of
the futures market to take feed back from them to improve the functioning of the futures markets.
The inputs received during these meetings were utilized while framing the regulatory policies in
the Commission. During the year, five meetings were conducted. Four meetings for the benefit
of Arbitrators of the national exchanges and one meeting for the Aggregators.
1.14.8 Aggregation Model for Farmers’ participation:
The Commission is making efforts through the National Exchanges to develop a model of
“aggregation”, so that various agencies, viz. Cooperatives, Farmers’ Associations, State
Marketing Federations, Non-Government Organizations and Banks would be able to act as
Aggregators and take consolidated positions on behalf of groups of farmers to facilitate their
hedging operation and transfer the benefit of futures trading to them. The Commission has also
taken up the issue with representatives of major cooperatives, marketing federations, NGOs,
Banks and other organizations having requisite domain knowledge and experience to act as an
interface and facilitator between the farmers and the futures market.
1.14.9 Project for Price Dissemination:
The Forward Markets Commission has, in association with the Commodity Exchanges,
initiated a process of dissemination of futures and spot prices of agricultural commodities at
various mandis, under the AGMARKNET. The FMC proposes to extend the project to post
offices, rural branches of the Banks, warehouses, offices of cooperatives and other areas
frequented by the farmers. The dissemination of price information is expected to help various
hedger groups, especially farmers, in their pre-sowing and post harvest decision making process
and hedging their price risks in the market. The project for dissemination of spot and futures
prices in agricultural commodities of relevance to particular States / areas / mandis is being
implemented in consultation with AGMARK. As on 31-03-2011, Price Ticker Boards have been
installed in 768 mandis spread across 23 States. During the year 2010-11, price ticker boards
were installed in 588 (including 33 in the North East Region) Mandis spread across 23 States. In
the previous year (2009-10), price ticker boards were installed in 183 mandis spread across 14
states.
10

13. It is proposed to install electronic price ticker Boards (conventional as well as GPRS
based) in 900 locations in the country during the year 2011-12. As there are insufficient APMCs
/ Mandis available for coverage under the project, the project is proposed to be extended to other
locations such as rural branches of commercial banks, branches of regional rural banks, co-
operative societies, agricultural universities and rural branches of post offices. The project is also
proposed to be extended to locations such as Panchayat Offices and small market yards which
may not have the requisite infrastructure capabilities for hosting the electronic price ticker boards.
In addition to this, price tickers of the commodity exchanges are run during news telecasts on
Doordarshan. Besides, future prices discovered in the Exchanges are published in newspapers,
displayed in railway stations and bus stands. Thus, the opacity of prices that existed earlier has
reduced considerably and conditions have been created for better integration of various spot
markets across the nation.
1.15 Inspection of books of accounts of Exchanges and their members:
The Commission has been inspecting the books of accounts of the Exchange Members
particularly of 3 National level Commodity Exchanges, viz. MCX, Mumbai, NCDEX, Mumbai
and NMCE, Ahmedabad on a regular basis since 2006-07. During the F.Y. 2010-11, 280 new
audits of members of the National Commodity Exchanges were assigned. Besides, audit of 3
National Exchanges, 14 Regional Exchanges and 1 special audit was also assigned to the
Auditors.
CHAPTER - II
11

14. DEVELOPMENTS IN THE COMMODITY DERIVATIVE MARKET 2010-11
2.1 During the year 2010-11, forward trading in 113 commodities, as given in Annexure I,
was regulated at the 5 National Exchanges, viz. Multi Commodity Exchange, Mumbai; National
Commodity and Derivatives Exchange, Mumbai, National Multi Commodity Exchange,
Ahmedabad, Indian Commodity Exchange, Gurgaon, and ACE Derivatives & Commodity
Exchange Limited (ACE). Besides, there are 16 regional exchanges recognized for regulating
trading in various commodities approved by the Commission under the Forward Contracts
(Regulation) Act, 1952. A list of Commodity Exchanges is given in Annexure II.
2.2 The National Exchanges, with the adoption of modern technology, have spread the facility
of commodity futures trading across the country. The total value of trade for the financial year
2010-11 was ` 119.49 lakh crore as against ` 77.65 lakh crore in the preceding financial year,
registering a growth of 53.88 %. Bullion, base metals, energy products and agricultural
commodities were the major group of commodities traded at the exchanges. Amongst these, gold,
silver, copper, lead, Nickel, zinc, chana, soy oil, guarseed and crude oil were prominent
commodities traded during the year. The resurgence of agriculture commodities in the commodity
futures platform seen in the year 2009-10 continued in 2010-11. The total value of trade in
agricultural commodities during the year was ` 14.56 lakh crore as against ` 12.18 lakh crore in
2009-10 indicates a growth of 19.54% over the year. During the period, future trading was
permitted in a new commodity “Iron Ore” at MCX, Mumbai & ICEX, and Mumbai.
2.3 During 2010-11, the Commission focused its activities on the regulation of futures trading
in commodities, spreading awareness amongst the various stakeholders through various
awareness and capacity building programmes and implementation of the Price Dissemination
Project at APMC Mandis. The Commission also took steps to promote the participation of
hedgers through a series of regulatory and developmental initiatives.
2.4 In the coming years, the priority of the Commission will be to consolidate the market;
strengthen regulation to generate confidence amongst the participants and keep the market free
from manipulation and abuses; increase awareness among the stakeholders especially the farmers;
empower the farmers with price information and identify, encourage and facilitate intermediaries
such as aggregators to facilitate the participation of farmers in the market for hedging.
2.5 The endeavor of the Commission has been to prevent market manipulation and ensure
market integrity, financial integrity and customer protection.
The important developments in the commodity derivative market during 2010-11 are
enumerated below:
2.6 Important Developments in the Commodity Derivative Markets:
2.6.1 During 2010-11, forward trading was regulated in commodities at 21 recognized
exchanges. The break up of the total value of commodities traded stood as under-
• Bullion - ` 54.94 lakh crore (45.98%).
• Base metals - ` 26.88 lakh crore (22.50%).
• Energy products - ` 23.11 lakh crore (19.34%).
• Agricultural commodities- ` 14.56 lakh crore (12.19%).
2.6.2 Out of 21 recognized exchanges, Multi Commodity Exchange (MCX), Mumbai, National
Commodity and Derivatives Exchange (NCDEX), Mumbai, National Multi Commodities
Exchange, (NMCE), Ahmedabad, Indian Commodity Exchange, Ltd., Gurgaon, ACE Derivatives
and Commodity Exchange, Ahmedabad, National Board of Trade (NBOT), Indore, contributed
12

15. 99.84% of the total value of the commodities traded during the year.
2.6.3 The share of various Exchanges in the total value of trade in 2010-11.
Value of the recognized Exchanges during 2010-11
Name of the Exchanges Value in ` Cr. % share to the total
value of the
commodities traded
during 2010-11.
MCX 98,41,502.90 82.36
NCDEX, Mumbai 14,10,602.21 11.81
NMCE, Ahmedabad
2,18,410.90 1.83
ICEX, Gurgaon 3,77,729.88 3.16
ACE, Ahmedabad @ 30,059.63 0.25
NBOT, Indore 51,662.06 0.43
Total of six Exchanges
1,19,29,967.58 99.84
Others 18,974.77 0.16
Grand Total 1,19,48,942.35 100
@ Value is inclusive of the value of trade at Ahmedabad Commodity Exchange, Ahmedabad.
% share of the commodity exchanges to the
total value of trade during the year 2010-11
(April-March)
NBOT
ACE
ICEX 0.25% 0.43%
3.16% Others
NMCE 0.16%
1.83%
NCDEX
11.81%
MCX
82.36%
MCX NCDEX NMCE ICEX ACE NBOT Others
2.7 Regulatory initiatives taken by the Forward Markets Commission:
2.7.1 Grant of Recognition / Renewal of Recognition to the association / recognized
exchanges, grant of registration / renewal of registration to the recognized exchanges and
grant of permission to trade in commodities.
a) Grant of recognition to ACE:
On recommendations of the Forward Markets Commission, the Ministry of Consumer
Affairs, Food and Public Distribution, Government of India, vide Notification dated 10th August
2010, granted recognition to the Ahmedabad Commodity Exchange, after its upgradation in to a
National Exchanges under the nomenclature ACE Derivatives & Commodity Exchange Limited
(ACE) on a permanent basis in respect of forward contracts in all the commodities to which
Section 15 of the Forward Contracts (Regulation) Act is applicable.
13

16. b) Renewal of Recognition to the Recognised Exchanges:
During the year, on the recommendations of the Commission, the Government of India
also renewed the recognition of the following Associations / Exchanges.
Sr. Name of the Exchange Period of renewal of Recognition Date of
No. and the Commodities permitted Notification
1. National Board of Trade, 1st June, 2010 to 31st May, 2011 4th June,
Indore (Rapeseed/Mustardseed) 2010
2. National Board of Trade, 1st July, 2010 to 31st October, 2010 30th June,
Indore (Soybean Seed, Refined Soy Oil 2010
and Soy Meal.)
3. National Board of Trade, 1st November, 2010 to 28th 28th October,
Indore February, 2011 (Soybean Seed, 2010
Refined Soy Oil and Soy Meal)
4. Bikaner Commodity 20th January, 2011 to 31st March, 7th
Exchange Ltd., Bikaner 2012. (Guarseed) December,
2010
5. Central India Commercial 1 March, 2011 to 31 March, 2012 21st January,
st st
Exchange Ltd., Gwalior 2011
6. Rajdhani Oils & Oilseeds 1st March, 2011 to 31st March, 2012 21st January,
Exchange Ltd., Delhi (Rapessed/Mustardseed). 2011
7. National Board of Trade, 1 March, 2011 to 28 February, 28th
st th
Indore 2013.(Soybean, Refined Soy oil & February,
Soy meal) 2011
8. East India Jute & Hessian 1st April, 2011 to 31st March 2012. 21st March,
Exchange Ltd., Kolkata (TSD) in jute goods (Hessain and 2011
sacking).
9. East India Jute & Hessian 7th April, 2011 to 6th April, 2012. 21st March,
Exchange Ltd., Kolkata (Raw Jute (including mesta) 2011.
10. Meerut Agro Commodities 1st April, 2011 to 31st March 2012. 21st March,
Co. Ltd., Meerut (Gur) 2011.
c) Details of Grant/Renewal of Registration granted to the Recognised Exchanges.
The Commission, in pursuance of Section 14 B of the Forward Contracts (Regulation)
Act, 1952 (74 of 1952) granted Certificate of Registration to the ACE Derivatives and
Commodity Exchange Limited, Ahmedabad, which has been upgraded from commodity specific
Exchange to Nationwide multi-commodity exchange and recognized by the Government u/s 6 of
the FC (R) Act, 1952.
The Commission, in exercise of its powers conferred under Section 14(B) of the Forward
Contracts (Regulation) Act, 1952, extended the period of registration of the following
associations / Exchanges analogous to the period of recognition of the respective exchanges.
Sr. Name of the Exchange Period of renewal of Registration Date of Issue of
No. and the Commodities permitted Registration
1 Rajkot Commodity 15th March, 2010 to 14th March , 12th April , 2010
Exchange Ltd., Rajkot 2011.
(Soyabean Oil)
2 Rajkot Commodity 1st April, 2010 to 31st March, 2013. 13th April , 2010
Exchange Ltd., Rajkot (Castorseed)
14

17. Sr. Name of the Exchange Period of renewal of Registration Date of Issue of
No. and the Commodities permitted Registration
3. Bikaner Commodity 20th January, 2010 to 19th January, 13th April, 2010
Exchange Ltd., Bikaner 2011.(Guarseed)
4. Surendrangar Cotton Oil & 1st April, 2010 to 31st March, 2011. 21st April, 2010
Oilseeds Association (Kapas)
Ltd.,Surendranagar
5. National Board of Trade, 1st July, 2010 to 31st October, 2010 8th July, 2010
Indore (Soybean Seed, Refined Soy Oil
and Soy Meal )
6. National Board of Trade, 1st June, 2010 to 31st May, 2011 8th July, 2010
Indore (Rapessed/Mustardseed)
7. National Board of Trade, 1st November, 2010 to 28th 9th November, 2010
Indore February, 2011 (Soybean Seed,
Refined Soy Oil and Soy Meal)
8. Bikaner Commodity 20th January, 2011 to 31st March, 3rd January, 2011
Exchange Ltd., Bikaner 2012. (Guarseed)
9. Central India Commercial 1st March, 2011 to 31st March, 2012 7th February, 2011
Exchange Ltd., Gwalior (Rapessed/Mustardseed).
10. Rajdhani Oils & Oilseeds 1st March, 2011 to 31st March, 2012 3rd March, 2011
Exchange Ltd., Delhi (Rapessed/Mustardseed).
11. National Board of Trade, 1st March, 2011 to 28th February, 25th March, 2011
Indore 2013.(Soybean, Refined Soy oil &
Soy meal)
d) Grant of permission for futures trading in commodities:
During the year, the Commission granted permission for trading in commodities to the
recognized Associations/Exchanges as detailed in Annexure III(A) & (B).
e) In-principle approval for recognition to the Universal Commodity Exchange
Limited (UCX), Mumbai as a Nationwide Multi Commodity Exchange
On the recommendation of the Commission, on 13th August, 2010, the Ministry granted
in-principle approval to the Universal Commodity Exchange Limited (UCX) for setting up of a
new Nationwide Multi Commodity Exchange.
th
2.7.2 Amendments to the Guidelines dated 14 May 2008 for grant of recognition to new
Commodity Exchanges under the FC(R) Act.
th
The Ministry, on 16 June 2010 granted approval to the amendment to clause 5.3 (i) of
th
the Guidelines (dated 14 May 2008) for grant of recognition to new Commodity Exchanges
under the FC(R) Act 1952. With this amendment, any single Stock Exchange along with the
persons acting in concert shall not hold more than 5% of the subscribed and paid up equity capital
of the said National Commodity Exchange. The cumulative shareholding of Stock Exchanges in
the relevant National Commodity Exchange shall not be more than 10%.
th
2.7.3 Amendments to the Guidelines dated 29 July 2009 on the Equity Structure of the
Nationwide Multi Commodity Exchanges after five years of operation.
The Government, on 9th July 2010, granted approval to the amendment to clause 3.3 and
th
3.4 of the Guidelines (dated 29 July 2009) on the Equity Structure of the Nationwide Multi
Commodity Exchanges. With this amendment, after five years of operation, any single Stock
Exchange along with the persons acting in concert shall not hold more than 5% of the subscribed
15

18. and paid up equity capital of the said National Commodity Exchange. The cumulative
shareholding of Stock Exchanges in the relevant National Commodity Exchange shall not be
more than 10%. The said amendments were forwarded to the concerned National Exchanges on
16th July 2010, for their information and necessary action. The amended guidelines have also
been placed on the website of the Commission.
2.7.4 Permission / NOC to the MCX, Mumbai for its proposed IPO:
The Commission, on 22nd April 2010, granted permission / NOC to the Multi
Commodity Exchange of India Limited (MCX), Mumbai for its proposed IPO subject to certain
conditions and modification / revision in the Guidelines dated 29th July 2009 on the Equity
Structure of Nationwide Multi-Commodity Exchanges after five years of operation.
2.7.5 Transfer of equity shares
The Commission on 22nd September, 2010, granted approval to NCDEX, Mumbai for the
transfer of 26, 25,000 (twenty-six lakh twenty-five thousand) equity shares at ` 145/- per equity
share (which constitutes 7% of the total paid-up capital of NCDEX) from CRISIL, a foreign
entity, to Shree Renuka Sugars Limited.
2.7.6 Introduction of new Anchor Investor
The Government on 23rd September, 2010, granted approval to the proposal of ICEX for
induction of Reliance Exchangenext Limited (R-NEXT) as the new Anchor Investor in the Indian
Commodity Exchange Ltd. (ICEX) subject to the following conditions by transferring 26% of the
equity shares out of the 40% of the equity shares held by the India Bulls Financial Services Ltd
(IBFSL):
(a) that three years lock in period condition should be applied to the new anchor investor R-
NEXT afresh with effect from the date of Government approval i.e. 23rd September,
2010.
(b) that in case MMTC exercises its right to stake a claim to 14% in ICEX in pursuance to its
right to first refusal, IBFSL will be bound to transfer its remaining 14% to MMTC at the
same price at which it is offered to R-NEXT.
2.7.7 Introduction of Jaypee Capital Services Ltd. as the Anchor Investor of NCDEX
The Commission on 7th October, 2010, granted approval to the proposal of NCDEX (i) to
issue 1,13,40,000 (One crore thirteen lakh forty thousand) equity shares to Jaypee Capital
Services Ltd. and 18,36,000 (Eighteen lakh thirty-six thousand) equity shares to Shree
Renuka Sugars Ltd. and (ii) for induction of the said Jaypee Capital Services Ltd. as the
Anchor Investor of the Exchange,
2.7.8 Investment by Bajaj Holdings and Investments Limited in the 24, 50,000 Equity
Shares of the NMCE, Ahmedabad of ` 10 each at a price of ` 102 per share
The Commission, on 11th October, 2010, granted approval to NMCE, Ahmedabad for
issuance of 24, 50,000 fresh equity shares, amounting to 12.82% of the post issue shareholding, to
Bajaj Holdings & Investment Limited.
2.7.9 Approval to Amendment to Bye-laws / Rules / Articles of recognized exchanges:
A. Approval of Bye-laws and Rules of ACE, Ahmedabad
16

19. The Commission On 22nd October, 2010, granted approval to the Bye-Laws and the Rules of
the ACE Derivatives and Commodity Exchange Ltd.
B. Amendment to the Articles of Association of the NMCE, Ahmedabad
The Commission, granted approval to the amendment to clause 64-A of the Articles of
Association, of the NMCE, Ahmedabad pertaining to capitalization of reserves and share
premium, realized from sale of capital assets.
C. Amendment to the Bye-Laws of MCX, Mumbai
The Commission approved the amendment to clause 11 of the Bye-laws 15 of the Bye-
laws of the Multi commodity Exchange Ltd., Mumbai specifying the period of one year to resolve
claims, differences and disputes referred to Arbitration.
2.8 Revision in Regulatory Measures:
The Commission kept a close watch on the trading activities in the commodity market
and took various steps from time to time by revising regulatory measures such as revision in the
special margins, additional margin, limit on open position, daily price limits, etc.
A. Revision in Special Margin:
2.8.1 At MCX Mumbai, Commission removed special margin of 15 % on longs and 5 % on
short open position in respect of Cardamom contracts and a 5 % additional margin in lieu of
special margin was imposed on both the sides w.e.f. 27.10.2010. This brought the total minimum
margins applicable on long & short sides of the cardamom contract to 10 %.
2.8.2 Similarly, a special margin of 10 % (5 % in cash) on long side of all Mentha oil contracts
was imposed, bringing the total minimum applicable margins on the long side of Mentha
contracts to 25 % (10 % additional, 10 % special & 5 % initial) and to 15 % (10 % additional and
5 % initial) on the short side.
2.8.3 Due to the volatility witnessed in Guar seed and Guar gum contracts, the NCDEX,
Mumbai imposed special margins of 10% on the long side in Guar seed and Guar Gum contracts
w.e.f. 26.11.2010. The Exchange further imposed a margin of another 10 % (out of which 5%
was to be collected in cash) on 13.12.2010. With this, the total special margin imposed on the
long side in Guar seed and Guar gum contracts traded at NCDEX stood at 20%.
2.8.4 Following the imposition of margins by NCDEX and with a view to bringing about
uniformity at the other two Exchanges, the Commission directed the Multi Commodity Exchange
Ltd., Mumbai and the National Multi Commodity Exchange Ltd., Ahmedabad to impose 20%
margins on Guar contracts traded on their exchange platform with effect from 13.12.2010.
2.8.5 In view of the volatility in the prices of Dhaniya, NCDEX, Mumbai, imposed special
margins of 5% on long open position in Dhaniya contracts w.e.f. 21st January 2011, (after the
expiry of January contract on 20.01.2011). As the Dhaniya contracts were also being traded at
MCX, the Commission, in order to bring uniformity in the margins at the National Exchanges,
also imposed additional margins of 5% on long open positions in Dhaniya contracts at MCX.
2.8.6 With a view to bringing uniformity in special margins on turmeric, the Commission, on
7.2.2011, withdrew the special margins imposed @ 5% on the long side in respect of the March,
April and May 2011 contracts of turmeric at NMCE, Ahmedabad. NCDEX, Mumbai had earlier
withdrawn this special margin on their running contracts.
2.8.7 In view of the volatility in the price of Kapas, NCDEX, Mumbai imposed special margin
17

20. on longs @ 5% on the Kapas contract. On a request from the Exchange, the Commission further
enhanced the margins by another 10% on the long side and conveyed its approval on 17.2.2011.
As the Kapas contracts were also being traded at the MCX, the Commission, in order to bring
uniformity in the margins at the National Exchanges, also imposed special margins @ 15% on the
long open positions in Kapas contracts at MCX
2.8.8 The prices of Mentha oil contracts traded at MCX, which were more or less steady during
the period 15.02.2011 to 12.03.2011, started rising following hectic trading activity on the
exchange platform. There was, however, no significant price movement in the spot market during
the corresponding period. After investigating the issue, the Commission directed the MCX on
21.03.2011 to impose additional special margin of 10 % (5 % in cash) on the long position of
March, 2011 & April, 2011 contracts with effect from 23.03.2011. The said margin was in
addition to the additional margins of 10 % (5 % in cash) on long & short side, special margin of
10 % (5 % in cash) on long side and initial margins which were already in force. With the
imposition of the additional special margin, the total margin on short position (inclusive of
additional, special & initial) applicable to all the Mentha contracts was 15 % ( 5 % in cash) and
35 % (15 % in cash) on long position of March, 2011 & April, 2011 contracts & 20 % (10 % in
cash) on long position in respect of other contracts.
2.8.9 NCDEX issued a circular on 8th March, 2011, reducing the special margin payable on
longs from 20 % to 10% on Guarseed and Guar gum contracts with effect from 9th March, 2011.
In order to bring uniformity in special margin on Guarseed and Guar gum contracts, across
exchanges, the Commission on 8th March, 2011, reduced the special margin payable on longs
from 20% to 10% at the NMCE, Ahmedabad and MCX, Mumbai as well. With this revision in
the special margin, the total special margin (Including special cash margin) at the National
Exchanges for Guar gum & Guarseed contracts stands at 10 % on the long side.
B. Revision in the open position limits
2.8.10 The Commission, on 1st November 2010 revised upward the open position limits in
respect of Copper and Nickel contracts traded on the National Exchanges. The revised limits are
as under:
Commodity Aggregate OI (MT)
Member Client
Copper 20,000 MT or 15% of the market wide 4000 MT
open position whichever is higher
Nickel 2500 MT or 15% of the market wide open 500 MT
position whichever is higher
2.8.11 On the basis of the representations received by the Commission to revise open interest
limits of trades in commodities, and after evaluation of the contracts, the Commission on 25th
February, 2011 revised the Open Interest Limit both aggregate (all contracts) limits and delivery
(near) month limits – in respect of certain agricultural commodities with effect from 25th
February, 2011. The revised position limits are given in Annexure – IV.
2.8.12 The Commission also reviewed the open position limits in the non-agri contracts in the
light of the past performance of the contracts and the representations received from the
Exchanges and revised the open position limits for 19 contracts with effect from 11th March,
2011. The revised limits are given in Annexure – V.
18

21. 2.8.13 Enhancement of hedge positions to the ITC Limited:
Based on the recommendations of the NCDEX, position limits on the short side in respect
of Soybean contracts to the ITC Limited was enhanced by the Commission, subject to certain
conditions. It was decided that the short hedge position allowed to the ITC Limited would not
exceed 2,00,000 MT or 15% of the total market open position, whichever is more, in all the
contracts of Soybean. The ITC was allowed to avail the above short hedge position limits in
Soyabean contracts till 30th September 2011.
2.9. Directives Issued to the National Exchanges:
2.9.1 Regulation of Intermediaries:
With a view to streamline the regulation of intermediaries, the Commission, on 28th July,
2010, issued directives to the exchanges on the “Regulatory Framework for Market Access
through Authorized Persons in Commodity Futures Markets”. The Commodity Futures
Exchanges were directed to discontinue the system of sub-brokers and switch over to the system
of Authorized Persons (APs) for giving market access to the clients trading in these markets
through the APs.
2.9.2 Early pay-in facility and Early Delivery System
a) The Commission revisited earlier directives (issued on 28th March 2007) with regard to
early-pay in facility in agri commodities on certain suggestions received from the market
participants and directed the National Exchanges on 18th October 2010, that they may exempt
charging delivery margins from the market participants who have moved their goods to the
Exchange warehouse. By these new directives, the earlier condition of giving compulsory
delivery intention after getting exemption from delivery margin has been dispensed with.
b) Impact of early delivery system on the trade pattern of Pepper, Mentha Oil, Rubber,
Soyabean, Soya Oil, Guarseed contracts was studied from time to time. The facility was extended
to Steel long contracts on 26th October 2010.
2.9.3 Fixing of Price limit on the first day of new contracts:
The Commission, after considering the operational difficulties experienced by the
National Exchanges for fixing of price limit on the first day of the contracts, issued revised
directives on 24th January 2011 to the National Exchanges as follows:
a) The Exchanges may take the weighted average price of the first half hour (the first
half hour of trading will not have any price limit) as the base price for fixing of price
limit for the first day of contract.
b) In case there is absence of trade during the first half hour, then the weighted average
price of the first one hour trade may be considered for the fixing of base price for
arriving at the price limit on the first day of the contract.
c) If there is no trading during the first hour of the day then the weighted average price
of the first 20 trades may be taken as the base price for fixing of daily price limit for
the first day of the contract.
d) The price limit for the rest of the day will be based on the base price arrived at as per
(a), (b), or (c) above as the case may be, with usual daily price limit on the base price
19

22. for the commodity, in that order of preference. The base price for the price-limit for
contracts other than near month contract, would also be fixed accordingly, except that
the first day for the contract would be the first day on which there is trading in those
contracts.
2.9.4 Fixation of Due Date Rate:
The Commission issued directives on 1st February, 2011 to the Commodity-Specific
(Regional) Exchanges on fixing of Due Date Rate for the contracts traded in their Exchange. The
guidelines issued are enclosed as Annexure – VI.
2.9.5 UCC details:
To ensure market and financial integrity in the commodity market, the Commission, on
7th March, 2011 directed the National Exchanges not to allow execution of trades without
uploading the UCC details including PAN numbers., address etc by the members of the
Exchange.
2.10 Developmental Measures:
The developmental measures taken by FMC during the year aimed at;
Strengthening regulatory mechanism by regular interaction with various market
constituents.
Increasing participation in the market by creating awareness of the practices prevalent
and the economic functions of the market.
Building the capabilities of the futures industry in the country by attracting trained
manpower.
The developmental initiatives of the FMC comprise conducting of awareness
programmes, meetings with stakeholders, conducting training programmes, tie ups with
educational institutions, conducting studies and collaboration with international
regulators.
2.10.1 Meeting with the various stakeholders/conferences:
The Commission conducted various meetings with different categories of stakeholders of
the futures market to take feed back from them to improve the functioning of the futures
markets. The inputs received during these meetings were utilized while framing the
regulatory policies in the Commission. Some important meetings held are as under:
An awareness meet for the arbitrators of the National Exchanges in West Zone was held
at Mumbai on 28th July, 2010
A meeting for the aggregators was held at Kochi on 12th August, 2010.
An awareness meet for the arbitrators of the National Exchanges in North Zone was held
at New Delhi on 21st August, 2010.
An awareness meet for the arbitrators of the National Exchanges in East Zone was held at
Kolkata on 26th November, 2010.
An awareness meet for the arbitrators of the National Exchanges in South Zone was held
at Chennai on 17th December, 2010.
2.10.2 Awareness programmes.
During 2010-11, 829 awareness programmes were organized for various participants
such as farmers, processors, exporters; banks, cooperatives, members of exchanges and their
20

23. clients, students and faculty members, agricultural universities etc. Of these 486 programmes
were exclusively held for farmers. During 2009-10, 515 awareness programmes were held, out of
which 423 were exclusively held for the farmers. Details of awareness programmes held during
2010-11 are given in Annexure VII –A & B.
2.10.3 Training/Capacity Building Programmes:
The Commission has tied up with various training institutions for conducting training to
various segments of the trade. During the 2010-11, 79 training programmes were held for the
benefit of various functionaries and three programmes were held for FMC Officers and staff. The
details of the capacity building programmes held for various functionaries are given in
Annexure -VIII.
2.10.4 International training/conferences/meetings
During the year 2010-11, the officers of the Commission and the officers of the
Department of Consumer Affairs were nominated for various international training programmes,
and also attended international conferences/ meetings organized by International Organisations/
Regulatory bodies like IOSCO, FIA, CFTC in different countries of the world. The details of the
foreign visits of the officers of the Commission may be seen at Annexure- IX.
2.10.5 Registration of Members of the Recognized Exchange:
The system of membership registration continued during the period (01-04-2010 to 31-
03-2011). The total number of members registered up to March 2011 is 5162. 250 intermediaries
are registered with the FMC, out of which 38 are warehouses and 212 are others (viz.Assayers,
Depository Participants, Clearing Banks & others.)
2.10.6 Inspection of books of accounts of Exchanges and their members:
The Commission has been inspecting the books of accounts of the Exchange Members
particularly of 3 National level Commodity Exchanges, viz. MCX, Mumbai, NCDEX, Mumbai
and NMCE, Ahmedabad on a regular basis since 2006-07. During the F.Y. 2010-11, 280 new
audits of members of the National Commodity Exchanges were assigned. Besides, audit of 3
National Exchanges, 14 Regional Exchanges and 1 special audit were also assigned to the
Auditors.
2.10.7 Attending to Client Complaints/Grievances
The Commission receives complaints from the clients registered with the Exchange
Members alleging unauthorized trades being executed by the Members in their account, contract
notes/account statements not being received from the members, misutilisation of clients’ money
etc. The complaints are forwarded to the respective exchanges for settling the grievances of the
clients expeditiously. During the year 2010-11, 64 complaints were redressed. During the same
period 103 fresh complaints were received. Several guidelines were also issued to the Exchanges
to streamline their systems of redressal of client’s grivences.
21

24. CHAPTER III
COMMODITY FUTURES MARKET IN 2010-11– A REVIEW
3. The Indian Commodity Futures Markets continued to grow, despite the suspension of
futures trading in a few agricultural commodities. During the year, 113 commodities were
regulated under the auspices of the recognized Exchanges. During 2010-11, 21 recognized
exchanges were functioning. Out of the 113 commodities, regulated by the FMC, in terms of
value of trade, Silver, Gold, Copper, Nickel, Zinc, Lead, Soy Oil, Guarseed, Chana, Pepper, and
Jeera were the prominently traded commodities.
The table below indicates the commodity wise/group wise volume and value of trade in
the commodity market during the year.
Volume of Trading and Value of Trade during the year 2010-11 in
Major Commodities
Volume of Trading – In lakh tonne
Value - In ` Crore
Sr.No Name of the Commodity 2010-11
Volume Value
A Bullion
i Gold 0.14 2700607.00
ii Silver 7.24 2793280.23
iii Platinum 0.0000002 4.89
Total for A 7.38 5493892.12
B Metals other than
Bullion
i Aluminum 110.17 114081.70
ii Copper 335.36 1239261.20
iii Lead 356.88 366422.24
iv Nickel 44.83 478789.31
v Steel 86.66 22759.03
Vi Tin 0.002 18.35
Vii Zinc 463.25 465375.27
viii Iron 12.56 965.89
Total for B 1409.72 2687672.99
C Agricultural
commodities
i Chana/Gram 523.59 126158.29
ii Wheat 26.78 3316.88
iii Maize 16.36 1730.06
iv Soy Oil 617.15 345286.26
v Mentha Oil 6.21 60527.10
vi Guarseed 1056.04 254690.88
vii Guar Gum 83.15 49942.57
viii Potato 269.22 14428.17
22

25. Volume of Trading and Value of Trade during the year 2010-11 in
Major Commodities
Volume of Trading – In lakh tonne
Value - In ` Crore
Sr.No Name of the Commodity 2010-11
Volume Value
ix Chillis 11.31 8493.79
x Jeera(Cuminseed) 42.53 60864.48
xi Cordmom 0.77 10882.04
xii Pepper 42.25 84786.09
xiii Rubber 11.78 23846.92
xiv other agri 1461.21 411436i.10
Total for C 4168.35 1456389.62
D Energy 7220.12 2310958.58
E Other 0.00 29.04
Grand Total (A+B+C+D+E) 12805.57 11948942.35
Note: Natural Gas, Heating Oil & Gasoline Volumes are not included in
the Total Volume.
The details of major commodities traded in the top 5 Commodity Exchanges which
accounted for 99% of the total value of trade in 2010-11 are given below:-
I) MULTI COMMODITY EXCHANGE OF INDIA, MUMBAI (MCX)
During 2010-11, MCX accounted for 82.36% of the total value of trade in the commodity
market. In actual terms, the total value of trade in the MCX was ` 98.42 lakh crore. During the
year, 39 commodities were traded at the MCX platform amongst which predominant
commodities traded during the year were Silver, Gold, Crude Oil, Copper, Nickel, Zinc and Lead.
The total value of trade and percentage share of each of these predominantly traded commodities
at MCX, Mumbai in 2010-11 is given below:
TOTAL VOLUME & VALUE OF COMMODITIES TRADED AT MCX, MUMBAI
2010-11
VOLUME (IN SHARE OF
VALUE ( ` IN
S.NO COMMODITY LAKH VALUE TO
CRORES)
TONNES) TOTAL
1 SILVER 6.97 2700017.25 27.44
2 GOLD 0.13 2469246.20 25.09
3 CRUDEOIL 6317.99 1764067.84 17.92
4 COPPER 309.80 1145074.86 11.64
5 NICKEL 43.55 464577.93 4.72
6 ZINC 388.87 389457.78 3.96
7 LEAD 300.60 306414.62 3.11
8 OTHER 515.40 602646.43 6.12
TOTAL 7839.71 9841502.91 100.00
23

26. @ Volume of trading of Natural Gas not included in the total as the Unit of trading is in mmBtu.
The graphical presentation of the percentage share of the prominently traded commodities at
MCX Mumbai is given below.
% SHARE OF THE VALUE OF THE COMMODITIES TRADED AT MCX,MUMBAI DURING April'2010
TO March' 2011
LEAD OTHER
3.11% 6.12%
ZINC
3.96%
NICKEL
4.72% SILVER
27.44%
COPPER
11.64%
CRUDEOIL
GOLD
17.92%
25.09%
SILVER GOLD CRUDEOIL COPPER NICKEL ZINC LEAD OTHER
1. Silver
The ready price of Silver, which was quoted at ` 26,875 per kg on 31.03.2010, rose to
` 55,900 on 31.03.2011, showing a rise of 108%. In the futures section, the price which was
quoted at ` 26,935 per kg (May 2010 contract) on 31.03.2010 rose to ` 55,970 per kg (May 2011
contract) on 31.03.2011 showing a rise of 107.80%.
Spot & Futures prices of Silver at MCX
60000
57500
55000
52500
50000
47500
Rs. per Kg
45000
42500
40000
37500
35000
32500
30000
27500
25000
31-Mar-10
12-May-10
26-May-10
9-Jun-10
23-Jun-10
7-Jul-10
21-Jul-10
13-Oct-10
27-Oct-10
10-Nov-10
24-Nov-10
8-Dec-10
22-Dec-10
5-Jan-11
19-Jan-11
2-Feb-11
16-Feb-11
2-Mar-11
16-Mar-11
30-Mar-11
1-Sep-10
15-Sep-10
29-Sep-10
14-Apr-10
28-Apr-10
4-Aug-10
18-Aug-10
SPOT 5-May-10 5-Jul-10 4-Sep-10 4-Dec-10 5-Mar-11 5-May-11 5-Jul-11 5-Sep-11 5-Dec-11
The total quantity traded in all contracts of silver was 6.97462 Lakh tonnes valued at
` 2700017.249 crore.
2. Gold:
24