History of Commodity Derivatives in India

History of Commodity Derivatives in India

Let’s learn more about History of Commodity Derivatives in India. Organized commodity derivatives in India can be traced back to 1875 with the Cotton Trade Association’s future trading. Over time the derivatives market developed in several other commodities in India. Following cotton, derivatives trading started in oilseeds in Bombay (1900), raw jute and jute goods in Calcutta (1912), wheat in Hapur (1913) and in Bullion in Bombay (1920).

After Independence, the Parliament passed Forward Contracts (Regulation) Act, 1952 which regulated forward contracts in commodities all over India. The Act applies to goods, which are defined as any movable property other than security, currency and actionable claims.

The commodity derivatives markets face a major crunch when the Act prohibited options trading in goods along with cash settlements of forward trades. Under the Act, only those associations/exchanges, which are granted recognition by the Government, are allowed to organize forward trading in regulated commodities. The Act envisages three-tier regulation:

(i) The Exchange which organizes forward trading in commodities can regulate trading on a day-to-day basis;

(ii) the Forward Markets Commission provides regulatory oversight under the powers delegated to it by the central Government, and

(iii) the Central Government – Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution – is the ultimate regulatory authority.

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