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The Union Cabinet is expected to consider the revised Forward Contract (Regulations) Amendment or FCRA Bill on Thursday. The Bill aims to introduce new products in the commodity markets besides strengthening the regulator, Forward Market Commission.
“The Cabinet is likely to consider a proposal for moving official amendments to the FCRA Bill 2010,” a senior Government official told Business Line . These amendments are based on recommendations given by a Parliamentary Standing Committee, he added. The bill was introduced in the Lok Sabha on December 22, 2011.
The Bill proposes to redefine the expression “forward contract” and allow trading in options in goods and commodity derivatives. This means that once the Bill is approved, options trading can be allowed apart from plain vanilla futures in various agri and non-agri commodities. The options instrument gives the right to buy or sell, but does not make it an obligation.
Sources said such a provision may also facilitate introduction of weather products. The Standing Committee had suggested that this will be more suitable for participants such as farmers to cover price risks. It will also make available more convenient instruments such as options, derivatives on weather. These instruments are used by companies to hedge against the risk of weather-related losses, etc.
The Bill also talks about financially empowering FMC. This can be done by allowing the regulator to collect fees from members, lay down more stringent penalties on erring brokers and hire staff at market salaries. It proposes to make provisions for investigation, enforcement and penalty in case of contravention of the Act’s provisions.
Here the committee favoured the imposition of stiffer penalty. It said that the minimum amount of fine should be Rs 5 lakh, which may extend up to Rs 50 lakh.
Although there is no mention of allowing banks and mutual funds in the original Bill, sources said this could be allowed. The Committee also recommends that banks, insurance companies, mutual funds, etc should be allowed to participate in the commodity markets in the larger interest of farmer community, as it will not only provide more liquidity to the markets but lead to better price discovery and lower volatility.
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