1. Chapter 2
Reforms in Indian Commodity
Derivatives market
Presented by:
Bhantraj Meena
Chandan Kumar
Harvinder Singaria
Hemant Arya
Irfan
K S Srinadh Choudary
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2. History
• 1875-Bombay Cotton Trade Association Ltd.-First organized
futures market
• 1893-Bombay Cotton Exchange Ltd.
• 1900-Establishment of Gujarati Vyapari Mandali, carries out
futures trading in oilseeds
• Futures trading in wheat was existent at several places in
Punjab and Uttar Pradesh
• 1913-Establishment of Futures exchange for wheat, Chamber
of commerce at Hapur
• 1920-Futures trading in bullion began in Mumbai
• 1919-Calcutta Hessian Exchange Ltd. was established for
futures trading in raw Jute and Jute goods
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3. • 1927-Organised futures trading in raw jute began only with the
establishment of East Indian Jute Association Ltd.
• 1945-Two associations amalgamated in 1945 to form the East
India Jute & Hessian Ltd. to conduct organized trading in both
Raw Jute and Jute goods.
• 1952-Forward Contracts (Regulation) Act was enacted
• 1953-Forwards Markets Commission (FMC) was established
under the Ministry of Consumer Affairs and Public
Distribution which oversees forward trading
• Several other exchanges were created in the country to trade in
diverse commodities
• Trading remained banned for a long period of time since 1966
and it was reintroduced in the early 2000s
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4. • A few selected commodities saw a reintroduction of futures in
1980 following the Khusro Committee report
• 1993-Kabra Committee was appointed to look into forward
markets-The committee recommended in 1994 that all futures
banned in 1966 be reintroduced as well as many others added
• 2000-National Agricultural Policy 2000 envisioned the
removal of price controls in agricultural markets and
widespread use of futures contracts
• The commodity futures market made the true restart in early
2000s with establishment of a number of nationwide multi
commodity exchanges
• Commodity futures market has developed significantly in
terms of both network and volume throughout the last decade
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5. • At present, there is a two-tier structure for Commodity
Exchanges in India: Regional and Country-Wide
• Regional exchanges are permitted to have only a limited
number of contracts whose membership is local.
• Countywide national exchanges are multi-commodity
electronic exchanges with a demutualized ownership pattern
• Currently, there are three such exchanges, viz., MCX (Multi
Commodity Exchange), NMCE (National Multi Commodity
Exchange) and NCDEX (National Commodities and
Derivatives Exchange).
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6. Future of Futures Market
• Derivative market serves two basic purposes in an economy
• It provides hedging opportunities to those who suffer from
uncertainties in market prices
• It applies particularly to agricultural and primary articles for
which supply depends highly on natural conditions such as
weather
• Commodity futures evolved as a means of hedging, although
latter on it was used more for speculation purposes
• In India, for instance, over 95 per cent of the trading volume
in futures today comprises speculative trades
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7. • Share of Commodity Groups in Trade Volume
• The volume of trade has increased from Rs. 34, 84,485 crore
in 2006 to Rs. 94, 94,725 crore in 2011
• It all shows that the market has strong growth potential
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8. Why do we need Commodity market
Commodity trading provides:-
1) Liquidity - the ability to buy or sell a commodity at a posted
price
2) Price Discovery - the ability to observe instantaneous market
price
3) Price Transparency - ability to know instantaneous price is "fair"
in contrast with a bilaterally negotiated price.

9. Technological reforms in Commodity Markets
Emerging technologies can add to the “customer delight
"through:
• Faster enablement of trading of newer & innovative products – adding
flexibility to the system to meet new requirements
• Faster go-to-market from the conceptualization state – reducing time
between conceptualization and actual trading
• Improved user experience – availability of information of major
requirement for commodity plate farms
• Integrated system – seamless integration of all stakeholders including
clearing house, banks, warehouse, assayers, spot markets, etc

10. • Proactive decision support system – easy
modification of contracts, management of risks, etc
• Value added services - futuristic customer service on
an integrated voice, mail and internet platform. A
stream of innovations in products

11. New Technological System in Commodity Markets

12. FDI & FII in commodity market
On 10 April, 2012 government announced new policy
regarding FDI and FII. These policies are-
• Foreign Institutional Investors (FII) can now to invest up to 23 per
cent in commodity exchanges without the prior approval of the
Government.
• Companies will have to take prior permission from RBI if the overall
FII holding goes beyond 24 per cent.
• FDI scheme is limited to 26 per cent in commodity exchanges,
• but will still require approval from the Foreign Investment
Promotion Board.
• The policy allows 100% FDI in business to business e-commerce
ventures (B2B), but not in retail trading ventures (B2C).
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13. • B2B e-commerce now falls under the purview of Wholesale
Trading which has been defined as sales for the purpose of
trade, business and profession, as opposed to sales for the
purpose of personal consumption.
• Govt. allows 100% FDI in selected agri- sectors like
production of seeds and planting material, floriculture,
horticulture, and cultivation of vegetables & mushrooms under
controlled conditions.
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14. Forward Market Commission (FMC)
• Chief regulator of the forwards and futures markets in India
• Established in 1953 and headquartered at Mumbai
• Statutory body setup under Forward Contracts (Regulation) Act,
1952
• Functions under the administrative control of the Ministry of
Consumer Affairs, Food & Public Distribution, Department of
Consumer Affairs, Government of India
• Consists of 2to 4 members, all appointed by the Government of
India
• Currently, it allows commodity trading in 22 exchanges in India, of
which 3 are national
• Allows futures trading in 23 Fibers and Manufacturers, 15 spices,
44 edible oils, 6 pulses, 4 energy products, single vegetable, 20
metal futures, 33 others Futures

15. Forward Market Commission (FMC)
• Functions:
 To advise the central govt. in respect of recognition or withdrawal
of recognition from any association
 To keep forward markets under observation and to take such action
in relation to them, as it may consider necessary, in exercise of the
powers assigned to it by or under the Act
 To collect and publish information regarding the trading conditions
in respect of goods to which provisions of the act are applicable
 To make recommendations generally with a view to improve the
organization and working of forward markets
 To undertake the inspection of the accounts and other documents of
any recognized association or registered association or any member
of such association whenever it considers it necessary

16. Reforms in Warehousing in India
• Need of reforms in warehousing:
 Problem of covered storage capacity
 lack of sustained investment in the warehousing sector
 private sector initiatives were small and sporadic
 most of the private sector warehousing capacities available in the
country were of poor quality, small, fragmented and do not meet the
requisite infrastructure standards
 Capital intensive sector and without availing finance from banks
and other financial institutions, warehousing facilities cannot be
created by the entrepreneurs
 About 80% handling and warehousing facilities are not mechanized

17. Reforms in Warehousing in India
• Some of the major reforms:
 The Warehousing (Development and Regulation) Act, 2007 had
been made effective from 25th October, 2010
 Warehousing Development and Regulatory Authority has been set
up by the Government from 26th October, 2010
 Negotiable Warehouse Receipt System (NWR), 2010
 Electronic Warehouse Receipt System (EWR), 2010
 Private Entrepreneurs Godown (PEG) Scheme, 2008
 Gramin Bhandaran Yojana or Rural Godown Scheme (RGS),
2001
 Scheme for Financing Warehousing Infrastructure under Rural
Infrastructure Development Fund (RIDF)