Rules Governing Commodity Derivatives Exchanges/Participants
Let’s learn more about Rules Governing Commodity Derivatives Exchanges/Participants. The trading of commodity derivatives on the NCDEX is regulated by the forwarding Markets Commission (FMC). In terms of Section 15 of the Forward Contracts (Regulation) Act, 1952 (the Act), forward contracts in commodities notified under section 15 of the Act can be entered into only by or through a member of a recognized association, i.e, commodity exchange as popularly known.
The recognized associations/commodity exchanges are granted recognition under the Act by the central government (Department of Consumer Affairs, Ministry of ConsumerAffairs, Food and Public Distribution).
All the Exchanges, which permit forward contracts for trading, are required to obtain a certificate of registration from the Central Government. The other legislation which has relevance to commodity trading are the Companies Act, Stamp Act, Contracts Act, Essential Commodities Act 1955, Prevention of Food Adulteration Act, 1954, and various other legislation, which impinge on their working. Forward Markets Commission provides regulatory oversight in order (to ensure financial integrity to prevent the systematic risk of default by one major operator or group of operators), market integrity (to ensure that futures prices are truly aligned with the prospective demand and supply conditions), and to protect and promote the interest of customers/ non-members. Some of the regulatory measures by forwarding Markets Commission include a Limit on the net open position as on the close of the trading hours. Sometimes limit is also imposed on the intra-day net open position. The limits are imposed member- wise and client wise. Circuit-filters or limit on price fluctuations to allow cooling of the market in the event of abrupt upswing or downswing in prices. Special margin deposit to be collected on outstanding purchases or sales when price moves up or down sharply above or below the previous day closing price.
