Commodities Market – A Historical Background

Commodities Market – A Historical Background

24 Sep 2018

The Organized Futures Market evolved in India with the setting up of the Bombay Cotton Trade Association Ltd. in 1875. Several futures markets in oil seeds were functioning in Gujarat and Punjab before the Second World War broke out in 1939. In case of wheat, the futures market was in existence at several centers at Punjab and Uttar Pradesh. Future markets in Bullion began at Mumbai in 1920 and later similar markets came up at Rajkot, Delhi, Kolkata, Jaipur, Jamnagar and Kanpur. Commodities such as pepper, turmeric, potato and sugar were traded with the help of several other exchanges created in India.The Forward Contracts (Regulation) Act, 1952 was enacted and the Act provided for a 3-tier regulatory system as follows :-

  • The Central Government
  • SEBI
  • An Association recognized by the Government of India on the recommendations of the Forward Markets Commission.

In July 1954, the Forward Contracts (Regulation) Rules were notified by the Central Government. The Act divides the commodities into three categories with reference to the extent of regulation. Most of the registered associations became inactive in the seventies and this is because of the registered futures as well as forward trading in the commodities came to be either suspended or prohibited altogether. The governmentaccordingly initiated futures trading in potato during the latter half of 1980 in quite a few markets in Punjab and Uttar Pradesh. In September 1994, the majority report of the committee recommended that futures trading be introduced in Cotton, Kapas, Groundnut, Castor Oil, Linseed, Silver, Onions and more. As a follow-up, the Government issued notifications in April 2003 permitting futures trading in commodities; with the issue of these notifications, futures trading is not anymoreprohibited in any commodity.

Recent developments in India

After initiating economic reforms in the 1990s, India realised the importance of commodity trading. By the beginning of 2002, there were about 20 commodity exchanges in India. These traded in 42 commodities. A few commodities also traded internationally.

Commodity Futures Contracts and the exchanges they trade in weregoverned by the Forward Contracts (Regulation) Act, 1952. The regulator is the Forward Markets Commission (FMC). In September 2015, the FMC merged with the Securities and Exchange Board of India (SEBI).

In 2002, the government allowed the reintroduction of commodity futures. The FMC approved the setting up of three commodity exchanges. These exchanges were screen-based. They allowed trading of multiple commodities nationwide.

Commodity Exchanges In India

Currently, there are 24 commodity exchanges in India. The following are the four main national-level exchanges.

Multi Commodity Exchange (MCX): MCX is India’s largest commodity exchange. Established as a public company in 2003, MCX is based in Mumbai. It offers futures trading in bullion, non-ferrous metals, energy and a number of agricultural commodities. This exchange was originally promoted by Financial Technologies, a software company in the capital markets space. At present, Kotak Mahindra Bank, Blackstone GPV Capital Partners Mauritius, and IDFC Premier Equity Fund are some of its key shareholders.

National Commodity & Derivative Exchange (NCDEX): NCDEX was founded as a public limited company in 2003. It too is based in Mumbai. It offers futures trading in 31 commodities. Trading in agricultural commodities is especially popular on this exchange. Its key shareholders are ICICI Bank, National Stock Exchange (NSE), National Bank for Agriculture and Rural Development (NABARD) and Life Insurance Corporation of India (LIC).

National Multi Commodity Exchange of India (NMCE):This exchange was originally promoted by trader Mr. Kailash Gupta and Central Warehousing Corporation (CWC) in 2002. It has its headquarters in Ahmedabad. NMCE offers trade in 44 different commodities. These range from copra to menthol. NMCE is especially popular for trading in spices and plantation crops, especially those from Kerala.

History often repeats itself, and you can continue the rich tradition in the commodities market by investing in Commodities Futures. First, though, you should have the necessary knowledge about Commodity Futures for that is one of the ways to reduce any risks involved. So, in the next chapter, you can learn all about the basics of commodity futures contract and its various features.

Indian Commodity Exchange Limited (ICEX):Indian Commodity Exchange Limited (ICEX) is a SEBI regulated online Commodity Derivative Exchange. Headquartered at Mumbai, the exchange provides a nationwide trading platform through its appointed brokers.The exchange launched the world’s first ever Diamond derivative contracts. ICEX aims to provide futures trading products in India’s all economically relevant commodities. This exchange is ideally positioned to leverage the huge potential of the commodities market and encourage participation of actual users to benefit from the opportunities of hedging, risk management and supply chain management in the commodities markets.

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