The following article will guide you about how government regulates the commodity market in India.

The comprehensive measures adopted by the Government to control community markets extend to regulating futures trading and making the futures market helpful for hedging transactions.

The relevant legislation named ‘The Forward Contracts (Regulation) Act 1952, effective from August 1953 and amended in 1953,1957 and 1960, aims at establishing well-organised futures markets in diff­erent centers of the country. The Government, with a view to realising the objectives of the Act, constituted the Forward Markets Commission to give effect to the regulatory measures.

The essential provisions of the Act are:


(1) The control over the commodity markets is mainly done through the agency of the Forward Markets Commission.

Its major functions are:

(a) To make recommendations on granting or withdrawing recognition of commodity markets engaged in forward dealings,

(b) To observe the operations in the commodity markets so as to suggest from time to time to the Govern­ment for taking steps in respect of the markets,


(c) To collect and dissemi­nate information related to the position of demand, supply and prices of commodities traded in commodity markets,

(d) To inspect the accounts of the commodity markets and their nature of operations in the forward markets and to give suggestions for improvement,

(e) To submit to the Government periodical reports on the functioning of the commodity markets and on the operation of the Act.

(f) To issue directives to the markets in terms of responsibilities conferred by the Government.


(2) Any commodity market dealing with forward trading’s shall be got recognised by the Government on the recommendation of the Commission.

(3) A commodity market must frame its rules and bye-laws according to the provisions of the Act and get them approved by the Government.

The bye-laws should include:

(a) Clearing of the transactions at least once in every fortnight;


(b) Establishment of a Clearing House for the purpose;

(c) Demanding margin deposits from members on futures contracts;

(d) Fixa­tion of market rates, of contract and tenderable grades, and of scale of brokerage;

(e) Penalty for contravention of bye-laws; etc.


(4) All non-transferable spot transactions are free from regulation. But if the Government so desires regulatory measures can be imposed on such contracts by notification.

(5) All types of contracts other than non-transferable spot contracts like the ready delivery contracts and forward delivery contracts come within the purview of this Act. The ready delivery contracts need settlement within a period not exceeding 11 days. Transferable spot contracts are transfer­able from one person to another. There shall be definite rules and regula­tions for final settlement between the first seller to the last buyer.

(6) Option dealings in all commodities have been declared illegal.

(7) All kinds of private dealings (‘dabba’ dealings) or kerb dealings (i.e. dealings outside office hours) and other forms of undesirable trading’s are unlawful.


(8) 4 matters on the Governing Body of a recognised commodity exchange must have Government nominees/ and each commodity exchange has to keep members in its Governing Body representing outside interests.

(9) The Government is empowered to withdraw recognition, to supersede the Governing Body and to suspend the business of any recognised exchange upto 7 days.

(10) A list of penalties including fines as well as imprisonments for violation of the provisions of the Act is also provided.