3.2.4. Futures Trading

Future trading has also been allowed to protect the market participants from the risk arising out of adverse price fluctuations. There is a three-tier regulatory structure for conduct of futures trading. At the base level, there are recognized/registered commodity associations/exchanges. At the middle level, SEBI (after merger of FMC with SEBI) regulates the functioning of commodity exchanges and approves their constitution and byelaws. The Department of Consumer Affairs, Ministry of Consumer Affairs, Food and Public Distribution, Government of India is at the top level, which oversees the overall functioning of the forward and futures markets.

Till 1991, futures trading was permitted in only 6 commodities. The process of reform was set in motion with the setting up of Kabra Committee, which submitted its report in 1994. Since then, several measures have been initiated in a phased manner to promote futures markets in the country. But the pace of reforms has so far been slow and cautious. At present, future trading is permitted in 81 commodities under 25 commodity exchanges. Government however has suspended 6 commodities (including wheat and rice) for future trading to curb inflation.