Friday, September 17, 2010

Amendments to the Forward Contracts (Regulation) Act 1952


on Friday, September 17, 2010

The Union Cabinet today approved amendments to the Forward Contracts (Regulation) Act 1952 by introducing the Forward Contracts (Regulation) Amendment Bill, 2010 in the Parliament.

After the Bill is passed and enacted by the Parliament, Forward Markets Commission (FMC) as a regulator will get autonomy and power to regulate the market effectively. New Products like ‘options’ will be allowed in the commodity market. This will benefit various stakeholders including the farmers to take benefit of ‘price discovery’ and ‘price risk management’.

The amendments proposed in the Forward Contract (Regulation) Act 1952 (FC(R) Act} are: (a) up-dation of existing definitions and insertion of some new definitions; (b) changes in provisions relating to composition and functioning of FMC; (c) enhancement of the powers of FMC; (d) corporatisation and demutualisation of the existing Commodities Exchanges and setting up of a separate Clearing Corporation; (e) registration of Intermediaries; (f) enhancement of penal provisions in the FC(R) Act; (g) permitting trading in options in goods or options in commodity derivatives; and (h) making provision for designating the Securities Appellate Tribunal (SAT) as the Appellate Tribunal for purposes of FC(R ) Act also including that of levying fee. The Bill also provides for some other provisions such as exempting FMC form payment of tax on wealth; income and profits or gains; conferring powers upon the Central Government; issue of directions to FMC on matters of policy and power to supersede FMC.

Background

The FC(R) Act provides for the regulation of commodity futures markets in India and the establishment of the Forward Markets Commission (FMC). While the markets have been liberalized with effect from April, 2003 and modern institutional structures are in the process of being evolved, yet the market regulator, FMC is largely functioning in its traditional format. Many of the existing provisions of the FC(R) Act need changes to strengthen and reinforce legal provisions to meet the requirements of changing environment. In order to amend further the FC(R) Act, the Forward Contracts (Regulation) Amendment Bill, 2006 (the Bill) was introduced in the Lok Sabha on 21.32006. The Bill went through the process of consultation and examination including that by the Parliamentary Standing Committee of the Ministry. After the extensive consultations and taking benefit of these inputs the proposal of the Ministry of Consumer Affairs, Food & Public distribution to introduce Forward Contract (Regulation) Amendment Bill 2010 has been approved.

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