FORWARD MARKET COMMISSION -REGULATORY FRAMEWORK 1.What is the present system of regulation in commodity forward/future trading i n India?

At present, there are three tiers of regulations of forward/futures trading syst em exists in India, namely, Government of India, Forward Markets Commission and Commodity Exchanges. The FC(R) Act, 1952 prohibits options in commodities. For the purpose of forward contracts in certain commodities can be regulated by notifying those commoditie s u/s 15 of the Act; forward trading in certain other commodities can be prohibi ted by notifying these commodities u/s 17 of the Act. 2.What is the need for regulating futures market? The need for regulation arises on account of the fact that the benefits of futur es markets accrue in competitive conditions. The regulation is needed to create competitive conditions. In the absence of regulation, unscrupulous participants could use these leveraged contracts for manipulating prices. This could have und esirable influence on the spot prices, thereby affecting interests of society at large.. Regulation is also needed to ensure that the market has appropriate ris k management system. In the absence of such a system, a major default could crea te a chain reaction. The resultant financial crisis in a futures market could cr eate systematic risk. Regulation is also needed to ensure fairness and transpare ncy in trading, clearing, settlement and management of the exchange so as to pro tect and promote the interest of various stakeholders, particularly non-member u sers of the market.