The Indian financial markets are expansive and dynamic, with various market segments like stocks, derivatives, currencies, commodities, etc. There is also the broader financial industry, which includes banking and insurance services. We have various regulatory bodies in place for the financial sector to function smoothly.
Some examples include the Reserve Bank of India (RBI), which monitors the banking industry; the Insurance Regulatory and Development Authority (IRDA), which regulates the insurance industry; and the Securities and Exchange Board of India (SEBI), which governs the securities market.
Another important regulatory body in India is the Forward Market Commission (FMC).
What is the Forwards Market Commission (FMC)?
The Forward Market Commission is the entity that is responsible for overseeing and regulating the commodity and futures market in India. While the SEBI regulates the securities market in general, the commodities market in India is quite diverse and active. Having a separate regulatory body like the FMC makes it easier to ensure that the commodities and futures segments are organised and streamlined.
That said, the Forward Market Commission is a division of SEBI. Since the two regulators monitor different segments of the financial markets, they are interconnected and perform some overlapping functions.
The history of the Forward Market Commission
Now that you know what the FMC means, let’s look at the history of the regulatory entity.
The FMC was established in 1953 as per the provisions of the Forward Contracts (Regulation) Act, 1952. As per the terms of this governing regulation, the FMC must consist of two to four members, one of which will be the chairperson appointed by the central government.
For several decades, the Forward Market Commission functioned as an independent entity and regulated the trading of commodities in the country. In the initial years, the FMC’s regulation of the commodity futures segment fell within the purview of the Ministry of Consumer Affairs, Food and Public Distribution (India). This was mainly because futures were trading primarily on food-based commodities.
However, the FMC was transferred to the authority of the Ministry of Finance in September 2013. This was because trading in commodity futures was expanding beyond food-based securities, making it more of a financial activity. Later, the FMC was merged with the SEBI in September 2015 to strengthen the regulation of commodity futures.
Exchanges and commodities regulated by the FMC
The Forward Market Commission regulates all the national and other commodity exchanges in the country and the commodities traded on them. The national commodity exchanges monitored by the FMC include:
- National Commodities and Derivatives Exchange Limited (NCDEX)
- Multi Commodity Exchange of India (MCX)
- National Multi Commodity Exchange of India (NMCX)
- Indian Commodity Exchange (ICEX)
In addition to these national exchanges, there are around 20 exchanges on which specific commodities are traded. Overall, the categories of commodities and commodity futures bought and sold in the Indian markets include the following:
- Food grains like dals, gram, wheat, maise, and bajra
- Spices like turmeric and pepper
- Edible oilseeds like mustard seed, groundnut, sunflower, cotton seed, soy oil, and rice bran oil
- Bullion like silver and gold
- Metals like zinc, lead and copper
- Fibres like jute and cotton
- Energy products like crude oil and natural gas
Functions of the Forward Market Commission
While the broad responsibility of the Forward Market Commission is to regulate and oversee the commodity and futures market, it has various specific functions. They include the following:
- To offer timely advice to the central government about any problems in the administration of the Forward Contracts (Regulation) Act 1952
- To offer timely advice to the central government about being offered any recognition by any association or the withdrawal of such recognition
- To observe and monitor the forwards market in India and to exercise its powers under the Forward Contracts (Regulation) Act 1952 as may be deemed necessary
- To gather and publish any necessary information about the trading conditions related to the commodities covered under the Act (this information may pertain to demand and supply or commodity prices)
- To offer recommendations for the improvement of the forwards market in India
To carry out the functions listed above, the Forward Market Commission is given various powers, including those of deemed civil courts. These powers include:
- Summoning any person, enforcing their attendance and examining them under oath
- Requiring the production and discovery of any file or document
- Receiving evidence via affidavits
- Requisitioning any public record from any office
Conclusion
The bottom line is that establishing the FMC streamlined the commodity futures market in the country. Later, when the FMC was merged with the SEBI, it further improved the controls in place. Today, the FMC and other regulatory bodies like the RBI, IRDA, and SEBI ensure that investors and customers’ interests are protected in the financial markets.
