The Hindu Business Line : Centre mulls more powers to Forward Markets Commission

THE Centre plans to provide more powers to the Forward Markets Commission (FMC), which supervises the functions of commodity exchanges, to protect the interest of all market participants.

A draft Bill on Forward Contracts (Regulation) Amendment proposes strengthening the FMC by increasing the number of members to seven from the current four, setting up a general fund for its financial autonomy and giving administrative freedom also.

Currently, the commission is an arm functioning under the Ministry of Consumer Affairs and its looks after the working of futures exchanges also.

According to the draft, which aims at defining commodity derivatives and futures contracts to provide for regulation, FMC will control futures in all goods. It also aims at removing the distinction between regulated and free commodity, which means the Government will cease to have control on any commodity. However, if required, the Centre could prohibit forward contract in any goods.

The Government plans to remove prohibition on options, a much-awaited move by commodity futures exchanges for increased participation and liquidity. The Centre sees options as a useful tool for risk management and "provisions regulating forward contract would also be made applicable to options in goods".

Options can serve as an insurance against a price rise or fall. In this, the participant needs to pay only a small premium to strike a deal. The option holders are free to either go through the deal or skip it by foregoing the premium.

The Bill has provisions for setting up an appellate tribunal on the lines of securities appellate tribunals for redress of grievances against Forward Markets Commission.

The other key aspect of the Bill is permitting "transferability" of warehouse receipts by scrapping Section 18(2) of the Forward Contracts (Regulation) Act 1952. The Government is keen on this as it plans to ensure that farmers/growers are able to get loans from financial institutions and banks against the produce that will be stored in warehouses. Plans are afoot to certify the quality and grade of produce.

The Bill envisages powers for the commission to levy fees for carrying out its activities. These will include regulation, research besides conducting searches and seizures. This is aimed to giving the Commission financial autonomy.

The amendment will also empower FMC to impose financial penalties on defaulters. Currently, the Commission does not have such power and the only power it or the Government has is to suspend an exchange or a member of a commodity exchange.

"Financial penalties would provide an intermediate and necessary deterrent to the intermediaries to comply with the procedures" says the objective of the draft Bill.

The penalty could be a maximum of Rs five lakh for every default/failure and the draft has provisions wherein no court can take cognizance of the cases in which proceedings are initiated by the Commission.

The Bill to amend the Forward Contracts (Regulation) Act, 1952 is slated to be taken up during the Budget session of Parliament.

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