REPORT
OF
THE GROUP ON
FORWARD AND FUTURES MARKETS
Department of Agriculture & Cooperation, New Delhi
December 2001
Contents
Chapter 9; 9; Page
Preface (i)
Executive Summary ; ; ; ; ; (ii-iii) 9;
1. Background on Forward and Futures Trading in &India #9; #9; #9; #9; #9; #9; 1-7
2. Reform Initiatives #9; #9; #9; #9; #9; #9; 8-10 3. Institutional Interface of Futures Trading set up 9; 11-15
4. ‘Candidate Commodities’ for Futures Trading #9; 16-21 5. Cost and Benefits of Action Plans 9; 9; 9; 22-24
6. Recommendations 9; 9; 9; 9; 9; 25-28
References 29-30
Annexures
I. Exchange-wise (permitted) Commodities. II. Exchange-wise status of implementation of reforms. III. Exchange-wise volume and value of trading. IV. List of commodities prohibited for futures trading. V. List of commodities under regulation – permitted for futures trading. VI. List of commodities in which NTSD contracts are prohibited. VII. List of commodities in which NTSD contracts are regulated. VIII. Constitution of the Group on forward and futures markets.
Preface
This report is prepared in response to the request of Department of Agriculture and Cooperation in the process of finding implementable solutions to the recommendations of the Expert Committee on Agricultural Marketing. The Report specifically covers areas relating to commodity forward and futures markets, administration of which is mandated to the Department of Consumer Affairs.
Though a number of major initiatives have been taken in promoting commodity futures markets in India in the recent past, many of the constraints inherited over decades of scarcity mindset generated ‘inward looking’ policies continue. The efforts of the Group have been not only in identifying these constraints but in suggesting measures for overcoming them in a short span of identifying these constraints but in suggesting measures for overcoming them in a short span of time as derivatives transactions across the world are growing in size and maturity. So are regulatory concerns and approaches. Thus, while the basic terms of references have been in terms of expanding the number of commodities in the permitted basket of commodities and in strengthening the institutions, the Group had to look beyond in the context of market and regulatory dynamics which is evolving globally. The Group recognised that in the post-WTO markets, forward and futures markets have to be leveraged according to the global trends.
I take this opportunity to gratefully acknowledge the contribution by all the Members of this Group and of those who represented. Particular thanks are due to Shri Anand Kumar Bhatt, Chairman, FMC, Shri Sudhir Kumar, MD, SFAC, Shri J.G. Gupta, GM, RBI and Shri R. Gandhi, GM, RBI, Shri C.K.G. Nair, Director and other officials associated with IT Desk, notably Smt. Alice Chacko, Under Secretary and Dr. Bhagwan Das, Research Officer.
New Delhi
December 2001
(Dr. Kalyan Raipuria)
Economic Adviser & Chairman of the Group
(i)
Executive Summary
Commodity futures trading in India commenced more than 100 years back. Major enactment to this effect was in the form of Forward Contract Regulation Act (FCRA), 1952. But, the situation has not matured due to the virtual banning of futures trading since the early 60s till late 80s when the scarcity environment prevailed. Presently, it remains in a state of flux and formation.
2. The commodity futures trading suffers from a number of limitations. The limited and closed nature of membership, absence of many hedgers who have substantial underlying positions, absence of transparency ( opacity ), limitations of prudential regulation, absence of a legal framework for warehouse receipt system and its negotiability and transferability etc. are serious constraints under which the current system operates. Quite often, the system is criticised that no futures trading which serves the intended purpose of price discovery and risk management is currently taking place.
3. However, since the beginning of 90s, concerted efforts have been made in expanding the scope of futures trading, along with general economic reforms. As a result of the renewed interest among the stake-holders, efforts have been made in both increasing the number of commodities permitted for futures trading and several institutional reforms. 4. Among reforms, the regulatory framework has been strengthened, exchanges have been exposed to the best practices from across the world, institutional interface between the various related agencies have been strengthened, enabling provisions for commencing options trading etc. have been proposed by means of amendments to the Act, initiatives such as modern national level commodity exchanges have been proposed and warehousing aspects such as receipt systems are being actively pursued.
(ii) 5. As proposed in the National Agricultural Policy, 2000 more agro commodities are being identified and added to the list of permitted commodities for futures trading (latest example being sugar). The objective has to be to move towards a situation where all ‘candidate commodities’ would be automatically allowed for futures trading under the overall regulation of the commodity market regulator.
6. The regulatory framework needs to be strengthened further by making the regulator autonomous and by strengthening the interface with other market regulators. and by strengthening the interface with other market regulators.
7. The Exchanges and other stake-holders are to wake up to the challenges facing commodity futures trading and ‘upgrade’ their action plans to face these challenges.
8. The level of general awareness, particularly that of farmers and their cooperatives, on futures trading and related issues needs to be raised for increasing participation in the futures markets.
(iii)
Chapter – 1
Background of Forward and Futures Trading in India
1.1 The number of individual commodities permitted for futures trading in India have increased from 11 in the mid-90s to 42 as of now, including derivatives of specific commodities. (In some of the commodities allowed futures trading is yet to start: eg, tea and sugar). 20 Commodity Exchanges located in various parts of the country are recognized/registered for conducting futures trading in these commodities. A list of these exchanges along with commodities permitted for trading is given at Annexure-I .
1.2 In the light of the perceived advantages of Forward and Futures Markets in terms of price discovery and risk management, as market based instruments such markets have been identified as important tools of price stabilisation. In the light of comprehensive reforms in agricultural marketing contemplated by the Government, extension of the facilities of forward and futures markets to all major agro commodities has assumed tropical importance. This urgency is reflected in the National Agricultural Policy of Government of India announced in the year 2000.
1.3 In pursuance of the National Agricultural Policy 2000 of the Government of India an Expert Committee was set up in December 2000 by the Department of Agriculture and Cooperation to recommend various reforms in agricultural marketing; whose recommendations (submitted Report in June, 2001) include the following relating to forward and futures markets in commodities :-
More commodities should be permitted for forward and futures trading to facilitate competitive and free marketing system.
Govt. has to continue its efforts to strengthen the commodity exchanges and to instill confidence and awareness among market players.
The Present System
1.4 Government have already been pursuing the necessary activities in widening and deepening the commodity futures market in the country in the last decade, particularly since the mid-90s. These efforts had two major components.
a. Increasing the number of commodities permitted for futures trading and
b. Strengthening the institutional structure and the legal framework for futures trading.
1.5 Commodity futures trading is conducted under a three-tier regulatory framework. The Exchanges themselves are the first-tier regulators, who are responsible for the orderly conducting of trade as stipulated under the rules, by-laws and other directions of the Forward Markets Commission (FMC), which is the market regulator, the second-tier of the regulatory frame. The FMC recommends (FMC), which is the market regulator, the second-tier of the regulatory frame. The FMC recommends approval of exchanges, approves by-laws of exchanges and engages in surveillance of exchanges for orderly conducting of futures trading. At the apex level is the Department of Consumer Affairs in the Ministry of Consumer Affairs, Food & Public Distribution that approves the exchanges, approves commodities for futures trading and formulate appropriate policies and rules for the development of this sector.
Constraints on Commodity Futures Trading
1.6 Commodity futures trading is like a Cinderella of derivatives trading. In many of the discussions on development of derivatives market, regulatory reforms and in designing other institutional structures, references to commodity futures trading is hardly even mentioned. This relative lack of recognition of commodity futures is mainly on account of the serious constraints under which this market now functions. Apart from physical/infrastructural limitations such as near absence of online trading, online surveillance and monitoring, prohibition on major products for derivatives trading, the non-availability of fool proof legal system of contracts, particularly relating to the warehouse receipt system etc are seriously constraining the futures market.
1.7 One of the major differences between securities derivatives market and commodities derivatives market is in the nature of delivery. While securities derivatives market is fully cash settled (even the spot market is in demat form) in commodities physical delivery does take place though to the extent of 1-2% of the total contracts. In fact the ‘threat of delivery’ is considered the centerpiece of the commodity futures market as it acts as an automatic equilibrating force in avoiding wild swings in this market. Hence quality certification and related procedures assumes importance along with the availability of quality warehouses. It also calls for the transferability and negotiability of the warehouse receipts fully backed by adequate legal provisions.
1.8 Another major reason for the ‘ backwardness ’ of commodity futures markets is the lack of interest by corporate bodies, banks and FIs. Banks are even reluctant to loan on the basis of ‘pledge receipts’, which are different from negotiable warehouse receipts. There are issues relating to ownership title when these instruments are presented as collateral and in deciding their transferability and negotiability.
1.9 Similarly, the existing futures markets are so small in terms of turnover that large corporate houses having underlying positions in the commodity concerned look forward to off-shore commodity exchanges in hedging and thereby covering their price risks. Classical example are those of Copper Companies like Birla Copper going to the London Metal Exchange and the oil companies like Reliance joining the International Petroleum Exchange etc.
Reforms
1.10 Though, the history of futures trading dates back to the 19 th century, futures trading in an organised fashion started in India in early 1950s with the enactment of the Forward Contract (Regulation) Act in 1952 and setting up of the Forward Market Commission in 1953, it had a chequered history. Since the early 60s, when the environment of shortage prevailed in most of the primary agricultural commodities, futures trading was banned in many of them. The institutional structure of the exchanges, was by early 90s weak in embarking on an ambitious programme of futures trading. Most of these exchanges had limited membership, extremely low volumes of trading (compared to production/marketed surplus) and very few modern practices.
1.11 A number of reform measures which needed to be introduced in the exchanges and at the regulator levels have indeed been identified and pursued. These include computerisation, professionalisation of exchanges by including non-trading interest in the Board and appointing professional sectt. support, time stamping, online trading, trade guarantee mechanisms, clearing mechanisms etc. With the help of a World Bank assisted IDF grant some of the selected exchanges have been exposed to the best international practices. The Forward Markets Commission has also been strengthened in terms of upgrading the board level posts and addition to the number of other posts. Modernisation of the office of the FMC has also matrialised in terms of equipment support and posts. Modernisation of the office of the FMC has also matrialised in terms of equipment support and monitoring and surveillance software.
S.No. Exchange level Reform Measures No. of Exchanges implemented the reforms
1. Simplification of Reporting System 14
2. Daily Mark-to-Market Margining 13
3. Time Stamping 7 (5)
4. Daily Reporting 7 (6)
5. Customer Protection 4 (4)
6. Back Office Computerisation 8(7)
7. Professionalisation of Management 7(8)
8. On-line Trading 1(3)
9. Trade Guarantee Mechanism 4(3)
10. Training of members (7)
Information upto March 2001, relating to already functioning 15 exchanges involved in futures trading. (NTSD exchanges and exchanges given permission in-principle are not included.
Figures in brackets are no. of exchanges that have partially implemented the reform measures
The detailed status of implementation of various reforms exchange-wise is brought out in Annexure-II.
1.12 During the later half of the nineties volumes and value of trading in some of the exchanges have reached reasonable levels while others have been striving details of which are given at Annexure-III . The summary position is as follows :-
Year Value of Trading (Rs billion)
1996-97 313.56
1997-98 314.79
1998-99 326.50 1999-00 228.59 *
2000-01 273.80
* The drastic decline in value of trading in 1999-2000 is mainly on account of the reduced trading at the Jute Exchange at Calcutta (from R 5022 to Rs 1234) and castorseed exchange at Ahmedabad (from Rs 6854 to Rs 5220 mn)
The trading in the newly approved/permitted commodities and in the new exchanges are yet to pick up as achieving volumes in futures contracts normally take some time.
1.13 The overall levels of trading of all exchanges are indeed mostly marginal compared to the production levels, and value added remains abysmally low. In order to carry forward the reforms and with the objective of the benefits of futures trading to reach the farmers directly or indirectly a proposal seeking further assistance from international agencies is also being prepared. The Government have taken a proactive stand in facilitating building up a model exchange in the corporate sector, with a nation wide reach by means of online trading. Such an exchange will be a model for other exchanges to emulate and to implement various reforms.
1.14 On the statutory front a few amendments to some of the provisions of the Forward Contract (Regulation) Act, 1952 have been moved and is currently with the Parliamentary Standing Committee. These amendments include removal of ban on options trading, provision of registration of brokers, further strengthening of FMC by including professionals as part-time Members, enhancing the penalty provisions, defining futures trading etc. These amendments, particularly removal of ban on options, are expected to go a long way in enhancing liquidity in the market.
1.15 The Government is thus already seized of the recommendations made by the Expert Committee (EC), both in terms of expanding the product basket as well as meeting the institutional milieu in which futures trading in the country has to prosper, providing a useful risk management tool to guard against price risks and to reap the benefits of price discovery.
Chapter – 2
Reform Initiatives for Futures Trading
2.1 The reform measures suggested by the Government and the FMC on the commodity exchanges are many:-
i. The system of daily mark-to market margining to improve financial integrity of the markets.
ii. The system of simultaneous reporting under which the member/brokers are required to put the transactions slips in a sealed box within fifteen minutes of execution of transaction. This measure facilitates audit trail and ensures that clients’ contracts are executed at a correct price.
iii. Trading ring discipline to be ensured by appointing a ring inspector, issuing of badges, prohibiting the entry of unauthorised persons in the trading ring, surprise check of the embers by the Exchanges etc.
iv. The exchanges to appoint a qualified Secretary (CEO) to look after its day-to-day operations.
v. Representation of diverse interest groups like growers, processors, exporters, importers etc. v. Representation of diverse interest groups like growers, processors, exporters, importers etc.
vi. The commodity exchanges to introduce a system of guaranteeing performance of the contract. However, the manner in which the contracts would be guaranteed by the exchange or a separate clearing house/corporation is left to the individual exchanges. Exchanges like IPSTA, BCE have set up independent clearing houses, which guarantee performance of the contract. Other exchanges have set up, or are in a process of setting up, of "Trade Guarantee Fund" within the exchange to guarantee performance of contracts.
vii. The commodity exchanges to amend their Rules/Articles of Association so as to provide at least 1/3 of the total strength of Board of Directors to be independent and non-trading directors. This measure has been taken to professionalise the Boards of exchanges in public interest and in the general trade interest. The exchanges should be run as public institutions. Lists of such independent Directors would be prepared by the exchanges themselves, from which the Commission would select suitable Directors. This measure is being implemented uniformly in all exchanges. The exchanges are, however, at liberty to increase the strength of exchange independent directors above prescribed limit of 1/3.
viii. Exchanges to furnish price and trading details to the Commission in two formats designed for the purpose through e-mail or through FAX.
ix. Adoption of an on line trading platform has been a necessary condition for the exchanges recently recognised for futures trading in edible oil seed complex. The four exchanges which were recognised in edible oil seed complex i.e. Bombay Commodity Exchange, Mumbai, National Board of Trade, Indore, Kanpur Commodity Exchange, Kanpur, First Commodity Exchange, Kochi, have assured to go on-line in stipulated time-frame. These exchanges are at different stages of implementation of on-line trade system such as identification of software vendor, grant of contract etc.
2.2 The Commission has been adopting a persuasive approach by impressing upon them the need of switching over to on-line trading platform. Some of the progressive exchanges have made progress. Bombay Commodity Exchange, Mumbai has already introduced on-line trading. East India Cotton Association (EICA), and India Pepper and Spice Trade Association (IPSTA) have made substantial progress in this direction. Many exchanges have developed software for their back office operations and provided e-mail connectivity.
2.3 Reform initiatives have also reached other stake holders associated with futures trading, besides as the regulatory body (FMC), warehousing agencies, clearing corporations, trade guaranteeing agencies, settlement bodies all need to adapt to the emerging situation in order to make commodity futures trading vibrant. The regulator (FMC) has been substantially strengthened. Initiatives on introducing warehousing receipt system with concomitant changes in quality and grading system etc. have also been contemplated/initiated by the warehouses and financial institutions etc. Specialised clearing corporations and separate trade guarantee mechanism have been started by some of the Exchanges with the support of the financial institutions and banks. Overall, the reform initiatives are spreading across the spectrum of stake-holders associated with commodity derivatives market, though gradually.
Chapter – 3 Institutional Interface of Futures Trading Set up
3.1 The success of commodity derivative trading is a multi-variant function with several stake- holders involved. They include the Exchanges, the regulators (both the market regulator as well as the Govt.) including other market regulators such as capital market, financial market etc., financial the Govt.) including other market regulators such as capital market, financial market etc., financial institutions, banks, warehouses and clearing and settlement corporations. For an all round development of this sector a clearly defined institutional interface is essential. This is particularly relevant in the context of growing integration between various markets and the market intermediaries. Exchanges are trading in all types of spot and derivatives products, regulators are emerging into super-regulators, financial institutions are becoming universal bankers etc. are major developments taking place across the world. In the light of this the institutional structures in India also have to adapt with a sufficiently long-term vision and plan.
3.2 When the edible oil seed complex was opened up for futures trading it was believed by Government that this could be used as an opportunity to impress upon the exchanges to accept the need of implementing the best trading practices prevalent internationally. Edible oil seed complex was traditionally being traded and had generated lot of interest among the traditional players. Therefore, it was decided by the Government to insist upon the exchanges to implement the following practices before they could be considered for recognition for futures trading in edible oil seed complex: -
Participation of diverse interests – growers, processors, exporters, importers, trade speculators;
‘On-line’ system of trading;
Efficient clearing, settlement and guarantee systems;
Delivery of underlying commodity backed by a warehouse receipt system;
System of well-organised and capitalised brokerage houses;
Real-time price and trade information dissemination;
Transparency in operations and decision – making;
Reliable, effective and impartial management, preferably demutualised form of organisation; and
Investment support from investors, including institutional investors.
3.3 The above major crteria were fixed for recognising exchanges for futures trading in sugar also, which have been recently notified under section (15) of the FC(R) Act.
4. Expectations from the Banking sector
a. By becoming a member of the clearing house.
b. As an investment tool i.e. placing its money in warehouse receipts or futures contracts just as in the money market.
c. Advising the clients on various risk management strategies.
Bank as a clearing member 3.5 Traditionally clearing was normally handled through the companies which were operating on the exchanges. However, in the recent decade, clearing operations have shifted to those institutions having a comparative advantage in financial operations. The wide geographical reach of the banks gives them an inherent advantage in accepting such a role as the clearing houses of the Exchanges. Clearing functions of an exchange, whether commodity or a stock exchange, are profitable operations for the bank and that is why many banks have been forthcoming in accepting such a role.
The Exchange as an investment tool
3.6 Banks can place a part of their funds in the contracts traded at an exchange. The participation of the banks, however, would depend on the central Bank regulatory requirement and other stipulations in connection with exposure to such business operations, as and when permitted. The liquidity of the contracts traded at the exchange would also be an important factor for the banks in making such investment decisions. The world over, a trend is observed wherein the banks hold titles of various warehouses receipts and trade at the exchange. The banks are not generally interested in taking or giving deliveries. The titles of the warehouse receipt however, are used for making deliveries if required. By participating in the commodity futures business it is not only the banks which would benefit but the entire commodity market would be benefited as necessary financial resources would be brought in by the banks.
Banks as risk management advisers
3.7 Banks while extending loans to the farmers for various agricultural related activities can impress upon them the need for managing the risk properly. This would not only ensure recovery of the loan extended but also inculcate among the farmers the need for understanding the risks associated with their investment decisions and managing them in an efficient and cost effective manner. This would help in the long run in transforming the agricultural economy of the country.
3.8 Thus the banks can indeed play a catalyst role in transforming the commodity exchanges and the agricultural economy. However, a proper understanding of the risks associated with commodity futures trading and suitable changes in banking regulations which restrict their operations of such speculative nature are required.
3.9 Banks can venture into the above areas only after they develop enough expertise to avoid consequences of wrong advise without valid disclaimer.
Other Institutions 3.10 Apart from Banks there are a host of other institutions, which support futures markets considerably. These include warehouses, clearing corporations financial institutions etc. The weakest link as of now amongst the supporting institutions is that of the warehouses and warehouse receipt system. Here, the interface between the exchanges, the banks and the warehousing agencies is crucial in evolving necessary framework in developing a mature warehousing system based on legally valid receipt system, supporting transferability and negotiability.
3.11 The Warehouse-Receipt should also act as a document of full title, like a bill of lading. This implies that a farmer or trader can transfer his agricultural produce so warehoused to his consignee or to the purchaser by transferring the Warehouse-Receipt itself by endorsement. Therefore, it is essential that all rights and liabilities in respect of such goods should be reflected by and in the body of the Warehouse-Receipt concerned. The property in the goods so warehoused ought to be transferred fully by endorsement and delivery of Warehouse-Receipt, like in the case of a bill of lading. A comprehensive legislation on Warehousing needs to be created on the lines of Indian Multi-model Transportation of Goods Act, 1993 to provide to the Warehouse Receipt attributes similar to bill of lading namely document to the title to the goods, documents containing rights and liabilities of holder and Warehouse keepers as well as negotiability. In order to workout the details, after taking into account the recommendations in this regard by another group of the task force, an after taking into account the recommendations in this regard by another group of the task force, an expert group may be constituted.
3.12 Similarly the second tier regulator needs to build up systematic interface with not only the exchanges which are being regulated, but with other regulatory agencies as well. Because there are considerable grey areas in the context of the system of multiple regulators. The linkages between the Reserve Bank of India, Securities and Exchange Board of India, Ministry of Finance, Department of Company Affairs and Department of Consumer Affairs, all belonging to the current matrix of regulation, have to be systematised and strengthened to avoid grey areas and thereby ensuring ‘optimal’ regulation.
The Regulatory set up of various markets
S.No. Institution Major Regulatory functions
1. Reserve Bank of India Public debt, foreign exchange interest rate and financial structure.
2. Ministry of Finance Capital markets, public debt related (Department of Economic policy issues. Affairs)
3. Department of Company Affairs Company Act and related issues of registration, Reporting etc.
4. Department of Consumer Policy issues relating to commodity Affairs futures trading
5. Securities and Exchange Board Regulator for securities market of India (SEBI) including securities derivatives market.
6. Forward Markets Commission Regulator for commodity derivatives (FMC) market.
Chapter – 4
Candidate Commodities for Futures Trading
4.1 Presently futures trading is allowed in 42 commodities. The agricultural sector is being opened up under the WTO. There is, therefore, a need for a mechanism to provide proper risk management and price discovery facilities has been felt which can give an indicative price to the farmers so as to help them plan their acreage accordingly. For this, the Forward Markets Commission have initiated steps for feasibility studies considering inclusion of more and more commodities for futures trading. In 1999 major edible oil seeds were permitted for futures trading. In May 2001 futures trading has been permitted in sugar and in November 2001 tea has been cleared. The FMC’s recommendations on permitting futures trading in commodities like rubber, onion, gram, and chillies are being examined by the Govt. The Commission has sought the comments of Reserve Bank of India for permitting futures trading in gold and silver. The feasibility studies on various other commodities like arhar, maize, linseed, cardamom, fibre yarn, cashew nuts, ginger and basmati rice etc. for ascertaining their suitability for futures trading is under progress. ascertaining their suitability for futures trading is under progress.
4.2 All the commodities are not suited for futures trading. For a commodity to be suitable for futures trading it must possess the following characteristics :-
i. The commodity should have a suitable demand and supply conditions i.e. volume and marketable surplus should be large.
ii. Prices should be volatile to necessitate hedging through futures trading in this case persons with a spot market commitment face a price risk. As a result there would be a demand for hedging facilities.
iii. The commodity should be free from substantial control from Govt. regulations (or other bodies) imposing restrictions on supply, distribution and prices of the commodity.
iv. The commodity should be homogenous or, alternately it must be possible to specify a standard grade and to measure deviations from that grade. This condition is necessary for the futures exchange to deal in standardized contracts.
v. The commodity should be storable. In the absence of this condition arbitrage would not be possible and there would be no relationship between spot and futures markets.
4.3 Based on the above criteria and as a follow up of the recommendations of the Kabra Committee the Government has permitted futures trading in various commodities. However, the current practice in USA and other Western countries is to allow futures trading in a range of commodities including live cattle, feeder cattle, hogs, pork bellies, fluid milk, rubber, tea, wool and industrial metals like copper, gold, lead, aluminium, silver, zinc and even in a number of ‘non-commodities’ such as weather index and pollution permits. The system of conventional criteria of identifying ‘candidate commodities’ needs to be reviewed afresh. It is possible, a priori, that wherever there are risks to be covered futures trading could be contemplated. It is, however, for the interested exchanges to examine the feasibility on a case-to-case basis based on concrete studies in deciding the appropriateness/usefulness of commencing futures trading in a particular product (as against commodity ).
Commodity Specific approval for Futures Trading - Outdated approach? 4.4 As per the existing provisions of the Forward Contract (Regulation) Act, 1952 commodities are broadly divided into 3 categories for purpose of forward/futures trading :-
1. Prohibited list, (2) Regulated list, and (3) Free (unlisted)
4.5 In 81 commodities specified in the Prohibited List ( Annex-IV ), covered under section 17 of the Act, futures trading is not allowed. For commencing futures trading in any of the items listed under this section the product is to be shifted out of section 17 to section 15 and brought under regulation allowing for futures trading with the approval of Cabinet.
4.6 As per the Regulated List, the list of 40 commodities ( Annexure-V ) permitted for futures trading under Section 15 of the Act, notifications are issued both for the commodity and for specific Exchanges approved for futures trading in them.
4.7 The 'residual commodities' (i.e. not figuring in either the prohibited list or in the regulated list) are called "free" commodities in which the Forward Markets Commission could give a certificate list) are called "free" commodities in which the Forward Markets Commission could give a certificate of registration to any applicant Association/Exchange for commencing futures trading under section 14 of the FC(R)A. (for example Coffee and Tea)
4.8 After a commodity is approved for futures trading, whether under section 15 or section 14, contract-wise approvals are given by the FMC to the concerned Exchange(s). Normally permission for a maximum of two contracts is given at any point of time; though in exceptional cases contracts for a full year may be given approval in advance.
4.9 Furthermore, currently two types of derivative transactions are being allowed in commodities (i) forward contracts [with two sub-categories Non-Transferable Specific Delivery Contracts (NTSD) and Transferable Specific Delivery Contracts (TSD)] and (ii) hedge (futures) contracts. In 79 Commodities covered under section 18 of the Act ( Annexure-VI ) even NTSD contracts are prohibited, which for permission has to be brought under section 15 of the Act ( Annexure-VII - 15 items). These approvals are also specifically laid down for any particularly commodity-exchange- configuration. That means the exchanges specifically allowed for NTSD forward contracts are not allowed to undertake trading in other form of derivative contracts or an exchange which is allowed for hedge contracts cannot undertake NTSD/TSD contracts etc., unless it is specifically permitted.
4.10 Other forms of commodity derivatives such as options, as well as commodity exchanges trading in financial derivatives (equity or index options and futures, interest rate derivatives, foreign exchange derivatives etc.) are not permitted. Thus, the degree of compartmentalisation is absolute between commodity exchanges and financial derivative exchanges and substantial within Commodity Exchanges for different types of Commodity derivatives themselves.
4.11 Specific approvals are given to the Exchanges at every stage, both in terms of commodities in which they are permitted for forward/futures trading as well as in terms of the number of contracts they are allowed to trade in at any point of time. It is recognized that approach to futures trading may be stifling innovative design of contracts according to market based analysis, market needs and feasibility studies of commodities of specific interest to particular exchange(s).
4.12 In an ideal situation, the exchanges should normally be free to choose the product, to design the contract(s) as well as to choose between the various forms of derivatives (futures, options etc.) while designing the contracts. Only such an approach can be considered a market based and feasibility studies based on the material balances and projections relating to commodity specific scenario could be evaluated and derivative contracts designed.
4.13 In developed economies, it is left to the exchanges to choose the commodity and to design the contract. The contract only is to be approved by the Regulator.
4.14 In the current system when commodities are opened up, exchanges put in their applications for them irrespective of their underlying interest/capabilities and generally without doing any feasibility studies. The limitation of such an approach is amply reflected in the rather retarded growth of the sector. The resulting commodity composition of futures trading is such that major voluminous commodities (such as grain, pulses, metals etc.) are out of the purview of futures trading; minor agricultural products are the ones generally permitted (exception being oil complex and sugar, just recently approved). Of course, many of these 'prohibited' commodities are under certain of controls that commencing futures trading has no meaning, as there is virtually no price risk to manage. Such a 'defensive approach' might have had its logic at the time of cautious opening up of this sector after decades of scarcity mindset. It requires change in a liberalised system gearing up for international competition in the post-WTO era.
4.15 In the liberalised scenario, the market based tools need to be allowed to operate in a market friendly environment. The piecemeal approach to futures trading need to go. Commodity-wise approach and contract-wise permission need to be done away with. There may be a small negative list of commodities. All others may be made 'free' commodities in which any exchange, on the basis of an evaluation/feasibility study, could apply to the Regulator (FMC) for permission for specified contracts (all forms of derivative contracts). The Regulator, based on set norms may allow them to contracts (all forms of derivative contracts). The Regulator, based on set norms may allow them to undertake trading under conditions of prudential regulation.
4.16 Since advanced forms of contracts such as options are not allowed under the Act as of now, the first step should be to decontrol NTSD contracts from the purview of the Act and to allow exchanges to operate reasonable number of futures contracts (12 to 24 months) at any point of time. Once options trading is allowed (after the proposed amendment is passed by Parliament), similar freedom should be extended to the Exchanges in options as well. Only if the markets are allowed to function under proper regulatory environment, the agricultural economy - one of the largest in the world - can fully exploit the benefits of markets in the country and abroad.
Chapter – 5
Cost and benefits of Action Plans for Expanded Futures Trading
5.1 With a view to re-invigorate the near dormant commodity market in the country after liberalising futures trade and permitting it in increasing number of commodities, the Government and the FMC have drawn up an action plans to improve infrastructure and trade practices of commodity exchanges. Futures trade in many commodities which was under suspension for quite some time has been permitted. New commodities have been brought within the ambit of futures trading lifting the ban on them. Dormant exchanges have been persuaded/allowed to revive futures trading. New exchanges have been recognised to organise futures trading in various commodities. The exchanges have been persuaded to upgrade their infrastructure such as trading ring, communication facilities, back office activities and other facilities. Some of the progressive exchanges have been encouraged to adopt screen-based on-line trading system. Simultaneously, best international trade practices, such as daily clearing, margining, creation of trade guarantee fund, transparency in trade and management practices to ensure market integrity and strict monitoring and surveillance of the trade in the exchange etc. were adopted.
5.2 Adoption of all these measures, in practice, means costs to the exchanges which most of them are not in a position to meet immediately. Accordingly, a graduated and phased plan of adoption of these measures have been adopted. Those measures which do not involve costs or involve minimal costs have been taken up first. Exchanges have been permitted to trade in commodities in an open outcry system, clearing was allowed on weekly basis. The exchanges have been asked to upgrade expensive facilities gradually. However, they had to adopt practices which will ensure market integrity and financial integrity to instill confidence among the participants.
5.3 All the costs involved in upgradation of infrastructure and adoption of modern practices as elaborated above devolve on the commodity exchanges, though they do not fall uniformly on all the exchanges, depending upon the extent of infrastructure already available and the phasing of other investment decisions.
5.3 Another component of the cost of action plan relates to the upgradation of infrastructure and capabilities of the Regulator. An important element of the Regulation cost is the expenses to be incurred by the Government and FMC for recruitment and training of human resources and providing modern equipment and software for monitoring and surveillance of the exchanges. Presently these costs are met through the budget of the Govt. As the commodity markets grow and become vibrant the regulatory costs can be recovered from the participants in the market, as is the case in the securities market. However, at present the participants in the commodity markets may not be in a position to bear this burden.
5.4 The incidence and the magnitude on each of the costs depend basiscally upon the business model and the technology adopted by them, which vary among entities. It is difficult, if not impossible, to arrive at a unique estimate of cost of action plan for the exchanges, their members and customers. Arriving at unit cost is much more hazardous as exchanges have not been able to and customers. Arriving at unit cost is much more hazardous as exchanges have not been able to come up with the forecasts of their business as a result of this improvement in infrastructure.
5.5 The measurement and quantification of the benefits accruing as a result of action plans to strengthen and upgrade the commodity market are also hazardous. The benefits of modernisation and upgradation such as hedging, price discovery and price dissemination are intangible as well as widely decentralised and have externalities. All the benefits (at least in short run) on modernisation of infrastructure and practices by the commodity exchanges cannot be satisfactorily internalised. Benefits accrue to the trade and economy at large by providing hedge facilities against adverse price movements, price discovery and an investment opportunity to the individuals and institutions such as mutual funds, pension funds etc.
5.6 Only part of the benefit generated by futures trading can be internalised by the commodity exchanges by charging for the services (transaction cost) to the participants. Moreover, there are problems of ‘free riders’ as some of the benefits particularly with respect to information dissemination, are non-exclusive in nature.
5.7 However, it is strongly felt that the agricultural economy will benefit greatly if efficient futures market is developed. The improved capabilities of the Regulator will help in developing efficient commodity market by having an effective oversight on the activities and trade of the commodity exchanges to ensure market integrity, financial integrity and customer protection. This will help create confidence in the commodity market for their growth and liquidity.
Chapter – 6
Recommendations
6.1 Commodity specific approach to futures trading may be discontinued. Instead recognised associations /exchanges could apply for permission for trading in any ‘contracts’ other than for the commodities in the negative list from the Commodity Market Regulator under the overall rules, procedures and guidelines of the regulator. The negative list under section 17 of the FC (R) Act may be given a fresh look so as to drastically prune it. Prohibition and regulation of NTSD contracts under the Act may be discontinued.
6.2 Exchanges should come out with feasibility studies on commodities and products based on a costs and benefits analysis of futures trading in such commodities/products. The system of piecemeal opening up and permission based on the Regulator’s/Government’s evaluation may be discontinued. Contracts proposed by the Exchanges based on proper feasibility studies should be studied and approved by the Regulator.
6.3 The design of contracts and the type of contracts (TSD, futures, options – as and when statutorily permitted, etc.) should be left to the Exchanges to be decided. Only the appropriate regulatory mechanism and enabling provisions should be finalised with the approval of the market regulator.
6.4 Commodity exchanges should be promoted as professional bodies with high degree of self-regulation as the first tier regulator. In order to instill confidence in investors, increasing volumes and thereby achieving the full benefits of futures trading these organisations have to mature by adapting best practices. Exchanges which are capable of implementing the necessary reforms detailed in the report may only be allowed to function in the new emerging environment where the touch stone of success is the global market, far from being the localised markets in which they have been operating so far. In this context promotion/encouragement of national level multi- commodity exchanges with professionalised, demutulised set up is essential. Parallel to focusing on increasing volumes etc. in the existing and emerging exchanges, emphasis on services in these exchanges such as professional participation, professional management etc. is needed- even though volume growth is slow- so that value addition increases. 6.5 As professional Self-Regulatory Organisations, much is to be done by the exchanges in promoting and developing institutional interface between the various stake-holders. Apart from such interface with the second and third tier regulators on a regular basis, it is equally important to have structured interface between other stake holders and ancillary bodies such as warehousing corporations, banks and financial institutions, clearing and settlement corporations, system of brokerages and institutions for risk containments.
6.6 The system of warehouse receipts needs to be universalised in futures trading to enable enhancing volumes and in minimising transaction costs. Warehouse Receipts should act as good evidence of the receipt for goods and the terms of the contract and storage, proof for their quality and conditions, or "apparent order and condition". Warehousing receipts (WHR) would go a long way in achieving these objectives apart from covering quality risk which is an important risk component of commodity futures trading. If quality risk is not covered price risk management by means of futures contracts have limited meaning and could have only limited success. Legal framework for making warehouse receipts transferable and negotiable should be strengthened in making negotiable warehouse system the demat of commodity futures trading. If need be an expert committee may be constituted to work out the details.
6.7 Along with deepening and widening futures markets and all round promotion of stakeholders’ interests and capabilities, the regulatory system also have to achieve dynamism. The regulator (presently FMC) needs to be strengthened and made an autonomous organisation with adequate powers and professional capabilities to monitor and surveille in an expanded and liberalised futures market in the country. Rules and procedures relating to the same need to be simplified to provide transparency and to achieve optimality of cost and benefit in regulation so as to prevent over regulation and the consequent stifling of market. Cost benefit analysis of regulatory procedure and practices under various scenarios would provide an ideal ground-work for an emergent regulatory framework.
6.8 The role of commodity market regulator may be redefined to regulate all derivative products, not just for commodity futures – like CFTC in the US – so that their specialized expertise can be optimally used.
6.9 A target turnover of futures trading may be kept, at least 10% of the GDP, from a level of 1.26% in the year 2000-01. The endeavour should be to achieve a multiplier of 10 times the value of production of commodities that are permitted for futures trading. Futures trading in non-agricultural commodities such as metals, as and when permitted, will add to the volume and value of futures trading.
6.10 The policy direction should be moving towards convergence of futures markets i.e. the commodities derivatives exchanges and the securities derivatives exchanges should be free to trade in either or both the categories of derivatives products, like in the case of major derivatives exchanges in the world such as CBOT, LIFFE etc. This, in addition to increasing volumes, would benefit in terms of scale economies and in taking full advantage of the specialised expertise in derivatives trading.
(Dr. Kalyan Raipuria)
(Anand Kumar Bhatt) (Sudhir Kumar)
(J. G. Gupta) (C.K.G. Nair)
References Government of India (1950) : Report of the Expert Committee on Forward Markets (Shroff Committee) Committee)
Government of India (1952) : Forward Contract and Regulation Act.
Government of India (1966) : The Forward Markets Review Committee (Dantawala Committee Report).
Government of India (1979) : Report of the Committee on Forward Markets (Khusro Report)
Government of India (1993) : Report of the Committee on Forward Markets (Kabra Report)
Government of India (2001) : Report of Expert Committee on Strengthening and Developing of Agricultural Marketing (Shankarlal Guru Committee)
Albercht W. (2000) : Market Monitoring and Surveillance of Forward Markets Commission, Forward Markets Commission, Mumbai.
Anjaria Burr (2000) : Report on Market Monitoring and Surveillance for Commodity Exchanges, Forward Markets Commission, Mumbai.
Chin D. and Mecklei J. (2000) : ‘Brokerages’ in Commodity Markets, Forward Markets Commission, Mumbai.
Coulter J. (2000) : Warehouse Receipt Systems, Forward Markets Commission, Mumbai.
Jeffery S. and Ramachandaran G : Guidelines on Clearing House, Ownership, Operations and Byelaws, Forward Markets Commission, Mumbai.
Youssef F. (1998) : Training and Educational Plan for the FMC and Indian Commodity Exchanges, Forward Markets Commission, Mumbai.
Youssef F. (2000) : Integrated Report on Commodity Exchanges and FMC, Forward Markets Commission, Mumbai
World Bank (1996) : Managing Price Risks in India’s Liberalised Agricultural : Can Futures Markets Help?
Reserve Bank of India (1997) : Report of the Committee on Hedging through the International Commodity Exchanges (RV Gupta Report)
Daves Howard (1997) – A New Regulator for the New Millennium – address, taken from the website www.fsa.govt.uk
Naik, Gopal and Jain, S.K. (1999) : A study on the Performance of Indian Commodity Futures Markets, Indian Institute of Management, Ahmedabad.
Patil R.H. (2001) Financial Sector : Single v/s Multiple Regulators, Economic & Political Weekly, Nov 10, 2001.
Raipuria Kalyan and Nair CKG (2001) Towards Production Indicators of Internal Trade Including Futures Trading in Service Sector, Paper prepared for presentation in the Seminar at NIBM Pune during 3-4 January, 2002, organized by Ministry of Finance.
Reddy Y.B.(2001) : Issues in Choosing Between Single and Multiple Regulators of Financial System – taken from the website of the Reserve Bank of India www.rbi.org.in taken from the website of the Reserve Bank of India www.rbi.org.in
*****
ANNEXURE-I
DETAILS OF THE ASSOCIATIONS CONDUCTING FORWARD/FUTURES TRADING
S.NO NAME OF THE ASSOCIATION COMMODITY
A Recognised under Section(6) of Forward Contracts (Regulation) Act, 1952
1. The Ahmedabad Commodity Exchange., Ahmedabad Castorseed- permanent recognition from 16.5.1959.
2. The Bombay Commodity Exchange Ltd., Mumbai Castorseed (permanent recognition from 8.9.1956), Castor Oil (International), RBD Palmolein, Sunflower Oil & Groundnut oil
3. Rajkot Seeds Oil & Bullion Merchants Assn., Rajkot Castorseed
4. The East India Cotton Assn. Ltd., Mumbai Cotton
5. The Ahmedabad Cotton Merchants Assn., Cotton (N.t.s.d) Ahmedabad
6. The Central Gujarat Cotton Dealers Assn., Vadodara Cotton (N.t.s.d.)
7. The South India Cotton Association, Coimbatore Cotton (N.t.s.d.)
8. Bhatinda Om & Oil Exchange Ltd., Bhatinda Gur
9. The Chamber Of Commerce, Hapur Gur & Potatoes
10. The Meerut Agro Commodities Exchange Ltd., Gur Meerut
11. Rajdhani Oils & Oilseeds Exchange Ltd., Delhi Gur 11. Rajdhani Oils & Oilseeds Exchange Ltd., Delhi Gur
12. Vijai Beopar Chambers Ltd., Muzzafarnagar Gur
13. The East India Jute & Hessian Exchange Ltd., Jute & Jute Goods Calcutta (Hessian & Sacking)
14. India Pepper & Spice Trade Assn., Kochi (Ipsta) Pepper (both domestic and international)
Domestic-permanent recognition from 2.4.1960
15. The Kanpur Commodity Exchange Ltd., Kanpur Rapeseed/Mustardseed its Oils And Oilcakes
16. The National Board Of Trade Ltd., Indore Rapeseed/ Mustardseed And Oilcake, Soyabean Its Oil and Cake
17. The Spices & Oilseeds Exchange Ltd,, Sangli Turmeric
18. First Commodity Exchange of India Ltd., Kochi Copra, Coconut Oil and Copra cake
19. Keshav Commodities Exch. Ltd., Delhi Potato
B The Associations Registered Under Section 14(B) of Forward Contracts (Regulation) Act, 1952
20. The Coffee Futures Exchange India Ltd., Bangalore. Coffee
A) Raw: i) Arabic parchment
ii) Robusta cherry
B) Cured: i) Plantation A
ii) Robusta cherry AB
ANNEXURE II & III Other Report -Report of the Group on Forward and Futures Markets -Anne
ANNEXURE-IV COMMODITIES IN WHICH FORWARD CONTRACTS HAVE BEEN PROHIBITED UNDER SECTION 17.
Sl. COMMODITY REGION No
FOODGRAINS AND PULSES
1 Wheat Entire Country
2 Gram Entire Country
3 Jowar Entire Country
4 Bajra Entire Country
5 Maize Entire Country
6 Ragi Entire Country
7 Small Millets (Kodan Kulti, Entire Country Kodra, Korra, Vargu, Sawan, Rala, Kakun, Samai, Vari & Banti)
8 Tur (Arhar) Entire Country
9 Urad (Mash) Entire Country
10 Mung Entire Country
11 Moth Entire Country
12 Masur Entire Country
13 Kulthi Entire Country
14 Peas Entire Country
15 Lakh (Khesari) Entire Country
16 Barley Entire Country 17 Guar Entire Country
18 Rice or Paddy Entire Country
19 Arhar Chuni Entire Country
20 Mung Chuni Entire Country
21 Tur Dal (Arhar Dal) Entire Country
22 Urad dal Entire Country
23 Mung dal Entire Country
24 Gram Dal Entire Country
25 Khandsari Sugar Entire Country
OILSEEDS, OILS AND OILCAKES
Sl. Commodity Region No
26 Taramiraseed Entire Country
27 Taramiraseed oil Entire Country (including Sohan oil and Jamba oil)
28 Mowraseed Entire Country (Mahuaseed)
29 Mowraseed oil Entire Country (Including Sohan oil & Jamba oil)
30 Linseed Entire Country
31 Linseed oil Entire Country
32 Castor oil Entire Country
33 Vanaspati Entire Country
34 Neemseed Entire Country
35 Neemseed oil Entire Country 35 Neemseed oil Entire Country
36 Karanja Entire Country
37 Karanja oil Entire Country
38 Salseed Entire Country
39 Sal Oil Entire Country
40 Khakan seed Entire Country
41 Khakan oil Entire Country
42 Kokum seed Entire Country
43 Kokum oil Entire Country
44 Nahor seed Entire Country
45 Nahor oil Entire Country
46 Undi seed Entire Country
47 Undi oil Entire Country
48 Watermelon seed Entire Country
49 Wartermelon oil Entire Country
50 Tobacco seed Entire Country
51 Tobacco seed oil Entire Country
52 Niger seed Entire Country
53 Niger oil Entire Country
54 Taramiraseed oilcake Entire Country
55 Linseed oilcake Entire Country
56 Celeryseed Entire Country
Fibres and Manufactures
Sl.No Commodity Region 57 Cotton pods Entire Country
58 Cotton Yarn Entire Country
59 Cotton Cloth Entire Country
60 Art Silk Yarn Entire Country
61 Raw Jute (including Entire Country except Mesta the States of W.B., Bihar, Assam, Tripura, Arunachal Pradesh & Mizoram.
Spices
Sl. Commodity Region No
62 Methi Entire Country
63 Coriander seed Entire Country
64 Anidees Entire Country
65 Pepper Entire Country except the State of Kerala and Greater Bombay
66 Betelnuts Entire Country except the State of Kerala
67 Cardamom Entire Country except the State of Kerala
68 Chillies Entire Country except the State of Kerala
69 Cinnamon Entire Country except the State of Kerala
70 Cloves Entire Country except the State of Kerala
71 Ginger Entire Country except the State of Kerala
72 Nutmegs Entire Country except the State of Kerala Metals
Sl. Commodity Region No.
73 Gold Entire Country
74 Silver Entire Country
75 Silver Coins Entire Country
76 Copper, Zinc, Lead or Entire Country Tin
Others
Sl. Commodity Region No.
77 Shellac Entire Country
78 Seedlac Entire Country
79 Chara or Berseem Entire Country (including charaseed or berseemseed)
80 Camphor Entire Country
81 Gram Husk (Gram Entire Country Chilka)
ANNEXURE-V
COMMODITIES TO WHICH SEC. 15 HAVE BEEN APPLIED THEREBY RENDERING ILLEGAL ALL FORWARD CONTRACTS EXCEPT THOSE ENTERED INTO BETWEEN MEMBERS OF A RECOGNISED ASSOCIATION OR THROUGH OR WITH SUCH A MEMBER.
Sl. COMMODITY REGION No
Oilseeds and Oils
1 Groundnut Entire Country 1 Groundnut Entire Country
2 Groundnut Oil Entire Country
3. Groundnut Oilcake Entire Country
4. Cottonseed Entire Country
5. Cottonseed Oil Entire Country
6 Cottonseed Oilcake Entire Country
7 Sesamum (Til or Jiljilli) Entire Country
8 Sesamum Oil Entire Country
9 Sesamum Oilcake Entire Country
10 Copra/Coconut Entire Country
11 Copra Oil / Coconut Oil Entire Country
12 Copra Oilcake/ Coconut Oilcake Entire Country
13 Safflower Entire Country
14 Safflower Oil Entire Country
15 Safflower Oilcake Entire Country
16. Rapeseed / Mustardseed Entire Country
17 Rapeseed Oil / Mustard oil Entire Country
18. Rapeseed Oilcake / Mustardseed Entire Country Oilcake
19. Rice Bran Entire Country
20 Rice Bran Oil Entire Country
21 Rice Bran Oilcake Entire Country
22 Sunflower Seed Entire Country
23 Sunflower Oil Entire Country
24 Sunflower Oilcake Entire Country Fibres & Manufacturers
S. Commodity Region No
25 Indian Cotton (Full pressed, half Entire Country pressed or loose
26 Kapas Entire Country
27 Staple Fibre Yarn Entire Country
28 Raw Jute 1 The States of WB, Bihar, Assam, Meghalaya, Orissa, Tripura, Arunachal Pradesh & Mizoram.
29 Jute goods (Hessian 2 and In the City of calcutta Sackings 2 A and cloth and/or bags, twines and/ or yarns mfd by any of the mills and/ or any other manufacturers of whatever nature made from jute).
Spices
30 Turmeric Entire Country
31 Pepper In the States of Kerala and within the limits of Greater Bombay
Others
32 Gur Entire Country
33 Castorseed Entire Country 34 Castoroil In the State of Maharashtra
35 Potato Entire Country
36 Soyabean
37 Soyabean Oil
38 Soyabean Oilcake
39 RBD Palmolein
40 Sugar
ANNEXURE-VI
COMMODITIES IN WHICH NON-TRANSFERABLE SPECIFIC DELIVERY CONTRACTS ARE ALSO PROHIBITED IN EXERCISE OF THE POWERS CONFERED UNDER SECTION 18 (3) OF THE ACT.
Sl. COMMODITY REGION No
FOODGRAINS AND PULSES
1 Wheat Entire Country
2 Gram Entire Country
3 Jowar Entire Country
4 Bajra Entire Country
5 Maize Entire Country
6 Ragi Entire Country
7 Small Millets (Kodan Kutki, Entire Country Kodra, Korra, Vargan, Sawan, Rala, Kakun, Samai, Vari & Banti) 8 Tur (Arhar) Entire Country
9 Urad (Mash) Entire Country
10 Mung Entire Country
11 Moth Entire Country
12 Masur Entire Country
13 Kulthi Entire Country
14 Peas Entire Country
15 Lakh (Khesari) Entire Country
16 Barley Entire Country
17 Guar Entire Country
18 Rice or Paddy Entire Country
19 Arhar Chuni Entire Country
20 Mung Chuni Entire Country
21 Tur Dal (Arhar Dal) Entire Country
22 Urad dal (Mash Dal) Entire Country
23 Mung dal Entire Country
24 Gram Dal Entire Country
OILSEEDS, OILS AND OILCAKES
Sl. Commodity Region No
25 Mustardseed 5 B Entire Country
26 Rapeseed or Toria 5B Entire Country
27 Taramiraseed Entire Country 28 Mowraseed (Mahuaseed) 6
29 Mustardseed Oil 7 Entire Country
30 Rapeseed Oil 7 Entire Country
31 Taramiraseed oil 7 (including Entire Country Sohan oil and Jamba oil)
32 Cottonseed oil 8 Entire Country36
33 Linseed Entire Country
34 Linseed oil 7 Entire Country
35 Vanaspati & Vegetable Oil 9 Entire Country Products
36 Mowraseed Oil 6 (Mahuaseed Entire Country Oil)
37 Neemseed Oil 6 Entire Country
38 Neem Oil Entire Country
39 Karanja 6 Entire Country
40 Karanja Oil 6 Entire Country
41 Kusumseed 6 Entire Country
42 Kusum Oil 6 Entire Country
43 Salseed 6 Entire Country
44 Sal Oil 6 Entire Country
45 Khakan seed 6 Entire Country
46 Khakan Oil 6 Entire Country
47 Kokum seed 6 Entire Country
48 Kokum Oil 6 Entire Country 48 Kokum Oil 6 Entire Country
49 Nahor seed 6 Entire Country
50 Nahor Oil 6 Entire Country
51 Undi seed 6 Entire Country
52 Undi Oil 6 Entire Country
53 Rice bran 6 Entire Country
54 Rice bran Oil 6 Entire Country
55 Watermelon seed 6 Entire Country
56 Watemelon seed Oil 6 Entire Country
57 Tobacco seed 6 Entire Country
58 Tobacco seed Oil 6 Entire Country
59 Sunflower seed 5 Entire Country
60 Sunflower Oil 6 Entire Country
61 Niger seed 6 Entire Country
62 Niger Oil 6 Entire Country
63 Castor Oil 6 Entire Country
64 Sesamum Oilcake Entire Country
65 Mustardseed Oilcake Entire Country
66 Rapeseed Oilcake Entire Country
67 Taramiraseed Oilcake Entire Country
68 Cottonseed Oilcake 10 Entire Country
69 Linseed Oilcake 11 Entire Country
70 Celeryseed 12 Entire Country 70 Celeryseed Entire Country
Fibres
71 Art Silk Yarn imported into Entire Country India 16
Spices
Sl. Commodity Region No
72 Methi Entire Country
73 Coriander seed Entire Country
74 Aniseed Entire Country
Metals
75 Gold Entire Country
76 Silver Entire Country
77 Silver Coins Entire Country
Others
78 Chara or Berseem (including Entire Country charaseed or berseemseed)
79 Gram Husk 6 (Gram Chilka) Entire Country
ANNEXURE-VII
COMMODITIES IN RESPECT OF WHICH SEC. 15 IS APPLIED TO NON-TRANSFERRABLE SPECIFIC DELIVERY CONTRACTS ALSO IN EXERCISE OF THE POWERS CONFERED UNDER SECTION 18 (3) OF THE ACT Sl. COMMODITY REGION No
Oilseeds and Oils
1 Groundnut 14 Entire Country
2 Groundnut Oil 15 Entire Country
3 Kardiseed Entire Country
4 Kardiseed Oil Entire Country
5 Sesamum (Til or Jiljilli) Entire Country
6 Sesamum Oil Entire Country
7 Copra Entire Country
8 Coconut Oil Entire Country
9 Cottonseed 16 Entire Country
Fibres & Manufacturers
S. Commodity Region No
10 Indian Cotton 17 (Full pressed, half Entire Country pressed or loose
11 Kapas 18 Within the limits of States of Punjab, Haryana, Rajasthan, UP and the UTs of Delhi & Chandigarh
12 Raw Jute 19 The States of WB, Bihar, Assam, Meghalaya, Orissa, Tripura, Arunachal (including Mesta) Pradesh & Mizoram.
13 Jute goods 20 (Hessian and In the City of calcutta Sackings cloth bags, twines and/ or yarns mfd by any of the mills and/ or any other manufacturers of whatever nature made from jute). jute).
Others
14 Gur 21 Entire Country
15 Castorseed Entire Country