Previous Year Question

The Forward Markets Commission—FMC was the erstwhile regulator of India’s Commodity Futures Market. The question concerns the regulatory framework existing in 2010.

Under a Futures Contract, two parties agree to buy or sell a commodity:

• On a specified future date;

• At a price determined in advance; and

• According to the prescribed quantity and quality.

Option (b) is correct

FMC regulated futures contracts based on commodities, including:

• Agricultural commodities—wheat, gram, soybean and cotton

• Metals—gold, silver and copper

• Energy commodities—crude oil and natural gas

• Other notified commodities

Its regulatory responsibilities included:

• Matters relating to recognition of Commodity Exchanges

• Supervision of Futures Trading

• Prevention of Market Manipulation

• Oversight of members and intermediaries

• Monitoring contract specifications and trading practices

Therefore, Commodities Futures Trading is the correct answer.

Option (a) is incorrect

Currency Futures are financial-market derivatives rather than commodity derivatives.

India’s regulatory framework for Exchange-traded Currency Derivatives involves RBI and SEBI:

• RBI regulates matters relating to foreign exchange and Foreign Exchange Management.

• SEBI regulates recognised stock exchanges and securities-market intermediaries.

Currency Futures were consequently outside FMC’s jurisdiction.

Option (c) is incorrect

Equity Futures are securities derivatives based on shares or stock indices. They are regulated by SEBI.

Examples include:

• Stock Futures

• Index Futures

• Stock Options

• Index Options

They are not Commodity Futures.

Option (d) is incorrect

FMC regulated the Commodity Futures Market. It did not comprehensively regulate Financial Futures such as Currency and Equity Futures.

Institutional change after 2015

FMC was merged with SEBI on 28 September 2015. SEBI subsequently became the regulator of the Commodity Derivatives Market as well.

The Forward Contracts (Regulation) Act, 1952 was repealed and Commodity Derivatives were incorporated into the securities-law framework.