Description
This is a presentation explaining of legal framework governing commodities market.
Multi Commodity Exchange
Legal Framework for the Commodities market
What is traded on a Commodity & Currency exchange?
• “Commodity Derivatives’’
• What are Derivatives?
• Swaps Options Forwards Futures
•
Markets?
• Debt, Forex , Stock & Commodity markets
As defined in the RBI guidelines
A derivative is a financial instrument: (a) whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the 'underlying') (b) that requires no initial net investment or little initial net investment relative to other types of contracts that have a similar response to changes in market conditions; and (c) that is settled at a future date.
As defined in International Accounting Standard (IAS) 39.
Why do we require Derivatives?
Manage Risk
• • • • Transfer Risk Price Discovery Integration of Markets Increase Savings in the long run
Types of Drivatives
? Two distinct groups of derivative contracts, distinguished by the way they are traded
? Over-the-counter (OTC) derivatives ? Exchange-traded derivatives
OTC Derivatives
? Contracts traded directly between two parties (privately negotiated) ? Outside the exchange with no intermediary ? The OTC derivatives market is close to USD 500 trillion (source: Bank of International
Settlements)
OTC Vs. Exchanges
OTC
Exchange Traded
• Future Contracts • Exchange assumes risk • Terms defined by Exchange • High Liquidity • Many Players • Margins • Price/Time Priority-Q • Standard structure
• Forward Contracts • Counterparty risk • Terms of contract changeable • Poor liquidity • Few Players • No Margins • Relationship • Skill to Structure
What is Commodity Future?
• “Futures” are standardized forward contracts traded on regulated exchanges. • “Futures contract” is a contractual agreement between two parties to buy or sell an asset of a specified quantity and quality at a specific time in future at a specific price through the Exchange
To qualify as a commodity
?
Not a complicated manufacturing process Standardized quality
?
?
Available in large volumes
Presence of many competing buyers & sellers
?
Underlying Commodities
BULLION : Gold,Gold HNI, Gold M, Silver,Silver HNI, Silver M
ENERGY: Light Sweet Crude Oil, Brent Crude oil,Middle East Crude Oil, Furnace Oil, Natural Gas
PLASTIC: Polypropylene, High Density Polyethylene
PLANTATION:Rubber, OIL &OIL SEEDS : Coffee Mustard Seed/Rape Seed, Mustard Oil/Rapeseed Oil Expeller , Castor Non-Ferrous Copper Seed,Castor Seed: Disa, Castor Oil ,Crude , Nickel ,Tin , Aluminium, Lead, Zinc Palm Oil ,Groundnut Oil Expeller,RBD Palmolein,Soy Seed , Refined Soy Oil,Kapasia Khalli, Sesame Seed,Cotton Seed METALS: Ferrous Steel Long,Steel Flat, Sponge Iron
Underlying Commodities
FOODGRAINS : Wheat , Maize ,Rice, Basmati Rice,Sarbati Rice *Banned in India
PULSES : Chana,Tur,Urad,Yellow Peas, Masur
SPICES: Black Pepper,Jeera,Red Chilli,Turmeric,Cardamom
FIBRE : Kapas,Cotton Long Staple,Cotton Medium Staple,Cotton Short Staple
JAGGERY: Gur,Sugar Medium Grain, Sugar Small Grain
OTHERS: Mentha Oil, Cashew Kernel, Guar Seed, Guar Gum, Potato
Development of Futures market in India.
1900: Gujarat Vyapari Mandali in Mumbai ( The Bombay Commodity Exchange of today) The Calcutta Hessian Exchange Ltd. in 1919 and East India Jute Association in 1927. Hapur( Wheat futures since 1913.) Bullion futures in Mumbai in 1920. 1914-18: During World War I , widespread defaults happened in multiple associations, multiple contracts, corners, squeezes. 1919: Bombay Control (War provision) Act passed by Govt. of Bombay ; Cotton contracts board was set up. Sept. 1939: Options were banned in cotton by the Ordinance issued 1943: Defense of India Act prohibited futures in multiple commodities and regulating futures in other commodities , forward trading in oilseeds, food grains, spices, sugar, vegetable oils and cloths was banned. 1946: Essential Supplies Temporary Powers Act was enacted continuing such ban. 1947: The Bombay Forward Contract Control Act was enacted .
Need of Regulator
The subject of "Stock Exchanges and Futures Market" in the Union list and therefore the responsibility for regulation of forward contracts devolved on Government of India. Forward/futures trading involves a passage of time between entering into a contract and its performance making thereby the contracts susceptible to risks, uncertainties, etc. Hence the need for the regulatory functions to be exercised by the Forward Markets Commission (FMC), which is the Regulator established under the provisions of Forward Contracts (Regulation) Act, 1952. The Parliament passed Forward Contracts (Regulation) Act, 1952 which presently regulate forward contracts in commodities all over India.
Forward Contracts Regulation Act, 1952
? ? ? ? ? ?
Empowers Govt. (through FMC) to regulate commodities trading Empowers Govt. to regulate specific commodity Grant of recognition to exchanges Not more than 4 members on Governing bodies of recognized associations (exchanges) Machinery (regulatory body) – FMC Repeal of any State Act on Commodities prevailing (transfer of commodities to Union List)
?
To conduct / facilitate Training
The features of the Act :
? The Act applies to goods, which are defined as any movable property other than security, currency, actionable claims.
? The Act classifies contracts/agreements into two broad categories, viz., ready delivery contract and forward contract. ? Recognition of commodity Exchanges ? Establishing Forward Markets Commission as regulator
Regulations………………………..….at all levels
? ? ? ?
Ministry of Consumer Affairs, Food and Public Distribution Forward Markets Commission Multi Commodity Exchange of India Limited Bye-Laws and Business rules
Forward Markets Commission (FMC)
?
Central Government had set up the FMC in 1953
?
FMC consists of Chairman, Nominated Members, Divisional Chiefs, Deputy Directors and staff
FMC is overseen by the Ministry of Consumer Affairs, Food & Public Distribution Powers of FMC include
? ? ? ? Governing regulating and supervising Granting/withdrawal of recognition to exchanges Curbing illegal forward trading Taking initiatives for increasing the awareness
?
?
Functions of FMC
?
Advises Govt. in providing recognition to exchanges Watchdog of the commodities derivatives markets
?
?
Supplies reports to Govt. on prevailing market conditions
Provides recommendations to Govt.
?
Functions of FMC (with regard to exchanges)
?
Inspection of accounts of exchanges and its member Approval / amendment of bye laws, Rules and regulations, Articles & Memorandum of Association of exchanges Vital link between commodity exchanges and Govt Approval of contracts before launch
?
?
?
Evolution of Regulation
?
Shri. A. D. Shroff Committee in 1950 Prof. M. L. Dantwala Committee in 1966
?
?
Prof. A. M. Khusro Committee in 1979
Prof. K. N. Kabra Committee in 1993 World Bank Study (in association with UNCTAD) in 1996
?
?
Shroff Committee (1950)
?
Made the draft Bill for Forward Markets Regulation Inputs received from different commercial organizations Led to the Forward Contract regulation Act of 1952 Led to Forward Market Commission (FMC) in 1953
?
?
?
Dantwala Committee (1966)
? ? ? ? ? ?
Review of previous 10 years of FMC Suggest amendments to FCR(A), 1952 Recommended that FMC be made autonomous Futures in export commodities to be allowed Futures contracts defined Options trading not recommended
Khusro Committee (1979)
• Reviewed role of FMC and analyzed markets
• Recommendations ? Not all commodities to be allowed for futures trading ? Condition for trade ( Homogeneity and large demand / supply) ? Allowed Exporters to hedge ? Laid down the possibilities for specific commodities (such as Sugar and Silver)
Kabra Committee (1993)
?
?
? ? ?
To assess the working of commodity exchanges Assess trading practices Assess role of FMC Compare international commodity markets Role of forward trading in price risk management
Kabra Committee (1993) Recommendations
? ? ? ? ? ? ? ?
Exchanges to enlist more members Ensure Capital adequacy norms Encourage Computerization Vigilance Committee and Panel of surveyors Arbitrators (dispute settlement mechanism) Permanent Recognition to exchanges Introduced futures trading in new commodities Allow Indian companies to hedge abroad
The Ordinance:
? The Government had introduced in the Parliament an amendment Bill to amend FCR Act in December 1998. ? The Bill could not be passed as it lapsed with the dissolution of the Lok Sabha in 2003. ? Till about 2000-01, the general approach of the Government was to ban or prohibit the commodity derivatives. From 2000-01 onwards, this market was opened up. ? Today, there are about 100 commodities which are traded on the three national and twenty regional commodity exchanges. The volumes of these markets have grown very rapidly from Rs.1.29 lakh crores in 2003-04 to Rs.36.7 lakh crores in 2006-07. During 2007-08 (till January, 2008), the volumes traded on the commodity exchanges have been Rs.31.60 lakh crores. As per the estimates projected by ASSOCHAM, the trade value would increase to Rs. 74 lakh crores by 2010.
The Ordinance:
? The role of FMC has consequently changed from enforcing prohibition to properly managing and regulating such explosive growth. ? It has so far managed to discharge this role through the instruments of margin, limit on open interest, price limits etc. ? A need is felt to further strengthen and enhance the capabilities of FMC as well as to give it the necessary autonomy by making comprehensive amendments to the FCR Act. ? It was also felt necessary to give FMC the much needed financial and administrative autonomy as well as arm it with requisite legal powers to discharge its regulatory functions effectively. ? In view of this , FC( R) Act was amended by Forward Contract (Regulation) Amendment Ordinance, 2008 .
Salient features of the Forward Contracts (Regulation) Amendment Ordinance, 2008
(a) (b) (c) (d) (e) (f) (g)
(h)
Enhancement of the powers of FMC; Similar to SEBI Corporatisation and demutualisation of the existing commodities exchanges Facilitating setting up of a independent clearing corporation; Registration of intermediaries; Introduction of monetary penalties by way adjudication, Enhancement of penal provisions; Permitting trading in options in goods or options in commodity derivatives; and Constituting SAT as the Appellate Tribunal for purposes of FC(R ) Act
Apart from FC( R) Act , following enactment also govern the commodities market
? ? ? ? ? ? ? ? ?
Mines and Minerals Regulation. Spice Board Cashew Board Coconut Development Board Act Cotton Act Coffee Act Gold Control Act Essential Commodities Act Natural Gas Regulation
Functions of the Commission under FC(R ) Act
? Regulate the business of the associations; ? Regulate the functioning of members of the associations, clearing houses, warehouses and intermediaries; ? Conduct research for the purpose of development and regulation of commodity derivatives market; ? Call from or furnishing to any such agencies, as may be specified by the Commission, such information as may be considered necessary by it for the efficient discharge of its functions; ? Protect the interests of the market participants in commodity derivatives markets; ? Promote and regulate self-regulatory oganisations; ? Prohibit fraudulent and unfair trade practices relating to commodity derivatives markets; ? Promote investors’ education and training of intermediaries; ? Prohibit insider trading in commodity derivative; ? Advise the Central Government as to the goods in respect of which forward contract or option in goods or option in commodity derivative may be notified;
Powers of the Commission
a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p) Advise the Central Government in respect of matters arising out of the administration. Grant or withdraw recognition of any Association (Exchange) Regulate the business of the associations Regulate the functioning of Members of the association, Clearing houses, warehouses and intermediaries. Levy fees for carrying out the purposes of the FC(R) Act Conduct research for the purpose of development and regulation of commodity derivatives market. Call from or furnishing to any such agencies such information. Protect the interests of the Commodity derivatives market. Promote and regulate self-regulatory organisation. Prohibit fraudulent and unfair trade practices relating to Commodity Derivatives Market. Promote investors’ education and training of intermediaries. Prohibit insider trading. Advise the Central government. Issue directions Impose Monetary Penalties. Investigate any market misdemeanor .
Powers of the Exchange
? To make rules respecting grouping of members, restricting voting rights, etc. in special cases.(section 9 A) ? Powers to make bye-laws.( section 11) How the exchanges are regulated? • Memorandum & Articles of Association to govern • matters relating to company affairs, Board and management • Bye-Laws: Overall framework for regulating trading and settlement • Rules: Matters relating to membership • Business Rules: Micro details relating to trading, • clearing and settlement, delivery, arbitration, etc. • Contract specifications
Penalties are imposed on the following occasion:
• • • • • • • •
Non furnishing of information Failure to maintain books etc. Not entering into agreements with clients Failure to redress grievances Insider trading Unfair trade practices Intermediary defaults Disobeying the directions of FMC
Consequences of non-compliance
? If any person contravenes any of the provisions or rules or regulations then he shall be: ? punishable with imprisonment for a term which may extend to three years or with fine or both. ? liable for monetary penalties ? liable for Directions by the Commission ? Liable for action by the concerned Exchanges
Jurisdiction of the court to try offences under the act
? No Court inferior to the Presidency Magistrate or Magistrate of the first class shall take cognizance or try any offence punishable under the act. ? Civil Courts do not have any jurisdiction -No civil courts have jurisdiction to entertain any suit or proceedings in respect of any matter which an adjudicating officer appointed under this Act or the appellate tribunal is empowered by or under this act. - No injunction shall be granted by any court or other authority in respect of any action taken or top be taken in pursuance of any power conferred under this act.
Exchange role in reviling confidential information.
As per the bye-laws of the Exchange; ? The Exchange may provide or disclose such details , particulars, data or information relating to any business transactions of its members or in respect of any commodity or security admitted to dealings on the Exchange as may be required or directed in writing by; A) Any Court; B) Tribunal; C) Central or State Government; D) FMC; or E) any other competent regulatory; F) Revenue authority empowered under any law or delegated legislation for the time being force in that behalf.
Section 91 of Criminal Procedure Code, 1973
•
Processes to compel the production of things;
“ 91. Summons to produce document or other thing: (1) Whenever any Court or any officer in charge of a police station considers that the production of any document or other thing is necessary or desirable for the purposes of any investigation , inquiry, trial or other proceedings under this code by or before such Court or officer, such Court may issue a summons , or such document or thing is believed to be , requiring him to attend and produce it, or to produce it, at the time and place stated in the summons or order. (2) Any person required under this section merely to produce a document or other thing shall be deemed to have complied with the requisition if he causes such document or thing to be produced instead of attending personally to produce the same.
doc_847495420.ppt
This is a presentation explaining of legal framework governing commodities market.
Multi Commodity Exchange
Legal Framework for the Commodities market
What is traded on a Commodity & Currency exchange?
• “Commodity Derivatives’’
• What are Derivatives?
• Swaps Options Forwards Futures
•
Markets?
• Debt, Forex , Stock & Commodity markets
As defined in the RBI guidelines
A derivative is a financial instrument: (a) whose value changes in response to the change in a specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index, or similar variable (sometimes called the 'underlying') (b) that requires no initial net investment or little initial net investment relative to other types of contracts that have a similar response to changes in market conditions; and (c) that is settled at a future date.
As defined in International Accounting Standard (IAS) 39.
Why do we require Derivatives?
Manage Risk
• • • • Transfer Risk Price Discovery Integration of Markets Increase Savings in the long run
Types of Drivatives
? Two distinct groups of derivative contracts, distinguished by the way they are traded
? Over-the-counter (OTC) derivatives ? Exchange-traded derivatives
OTC Derivatives
? Contracts traded directly between two parties (privately negotiated) ? Outside the exchange with no intermediary ? The OTC derivatives market is close to USD 500 trillion (source: Bank of International
Settlements)
OTC Vs. Exchanges
OTC
Exchange Traded
• Future Contracts • Exchange assumes risk • Terms defined by Exchange • High Liquidity • Many Players • Margins • Price/Time Priority-Q • Standard structure
• Forward Contracts • Counterparty risk • Terms of contract changeable • Poor liquidity • Few Players • No Margins • Relationship • Skill to Structure
What is Commodity Future?
• “Futures” are standardized forward contracts traded on regulated exchanges. • “Futures contract” is a contractual agreement between two parties to buy or sell an asset of a specified quantity and quality at a specific time in future at a specific price through the Exchange
To qualify as a commodity
?
Not a complicated manufacturing process Standardized quality
?
?
Available in large volumes
Presence of many competing buyers & sellers
?
Underlying Commodities
BULLION : Gold,Gold HNI, Gold M, Silver,Silver HNI, Silver M
ENERGY: Light Sweet Crude Oil, Brent Crude oil,Middle East Crude Oil, Furnace Oil, Natural Gas
PLASTIC: Polypropylene, High Density Polyethylene
PLANTATION:Rubber, OIL &OIL SEEDS : Coffee Mustard Seed/Rape Seed, Mustard Oil/Rapeseed Oil Expeller , Castor Non-Ferrous Copper Seed,Castor Seed: Disa, Castor Oil ,Crude , Nickel ,Tin , Aluminium, Lead, Zinc Palm Oil ,Groundnut Oil Expeller,RBD Palmolein,Soy Seed , Refined Soy Oil,Kapasia Khalli, Sesame Seed,Cotton Seed METALS: Ferrous Steel Long,Steel Flat, Sponge Iron
Underlying Commodities
FOODGRAINS : Wheat , Maize ,Rice, Basmati Rice,Sarbati Rice *Banned in India
PULSES : Chana,Tur,Urad,Yellow Peas, Masur
SPICES: Black Pepper,Jeera,Red Chilli,Turmeric,Cardamom
FIBRE : Kapas,Cotton Long Staple,Cotton Medium Staple,Cotton Short Staple
JAGGERY: Gur,Sugar Medium Grain, Sugar Small Grain
OTHERS: Mentha Oil, Cashew Kernel, Guar Seed, Guar Gum, Potato
Development of Futures market in India.
1900: Gujarat Vyapari Mandali in Mumbai ( The Bombay Commodity Exchange of today) The Calcutta Hessian Exchange Ltd. in 1919 and East India Jute Association in 1927. Hapur( Wheat futures since 1913.) Bullion futures in Mumbai in 1920. 1914-18: During World War I , widespread defaults happened in multiple associations, multiple contracts, corners, squeezes. 1919: Bombay Control (War provision) Act passed by Govt. of Bombay ; Cotton contracts board was set up. Sept. 1939: Options were banned in cotton by the Ordinance issued 1943: Defense of India Act prohibited futures in multiple commodities and regulating futures in other commodities , forward trading in oilseeds, food grains, spices, sugar, vegetable oils and cloths was banned. 1946: Essential Supplies Temporary Powers Act was enacted continuing such ban. 1947: The Bombay Forward Contract Control Act was enacted .
Need of Regulator
The subject of "Stock Exchanges and Futures Market" in the Union list and therefore the responsibility for regulation of forward contracts devolved on Government of India. Forward/futures trading involves a passage of time between entering into a contract and its performance making thereby the contracts susceptible to risks, uncertainties, etc. Hence the need for the regulatory functions to be exercised by the Forward Markets Commission (FMC), which is the Regulator established under the provisions of Forward Contracts (Regulation) Act, 1952. The Parliament passed Forward Contracts (Regulation) Act, 1952 which presently regulate forward contracts in commodities all over India.
Forward Contracts Regulation Act, 1952
? ? ? ? ? ?
Empowers Govt. (through FMC) to regulate commodities trading Empowers Govt. to regulate specific commodity Grant of recognition to exchanges Not more than 4 members on Governing bodies of recognized associations (exchanges) Machinery (regulatory body) – FMC Repeal of any State Act on Commodities prevailing (transfer of commodities to Union List)
?
To conduct / facilitate Training
The features of the Act :
? The Act applies to goods, which are defined as any movable property other than security, currency, actionable claims.
? The Act classifies contracts/agreements into two broad categories, viz., ready delivery contract and forward contract. ? Recognition of commodity Exchanges ? Establishing Forward Markets Commission as regulator
Regulations………………………..….at all levels
? ? ? ?
Ministry of Consumer Affairs, Food and Public Distribution Forward Markets Commission Multi Commodity Exchange of India Limited Bye-Laws and Business rules
Forward Markets Commission (FMC)
?
Central Government had set up the FMC in 1953
?
FMC consists of Chairman, Nominated Members, Divisional Chiefs, Deputy Directors and staff
FMC is overseen by the Ministry of Consumer Affairs, Food & Public Distribution Powers of FMC include
? ? ? ? Governing regulating and supervising Granting/withdrawal of recognition to exchanges Curbing illegal forward trading Taking initiatives for increasing the awareness
?
?
Functions of FMC
?
Advises Govt. in providing recognition to exchanges Watchdog of the commodities derivatives markets
?
?
Supplies reports to Govt. on prevailing market conditions
Provides recommendations to Govt.
?
Functions of FMC (with regard to exchanges)
?
Inspection of accounts of exchanges and its member Approval / amendment of bye laws, Rules and regulations, Articles & Memorandum of Association of exchanges Vital link between commodity exchanges and Govt Approval of contracts before launch
?
?
?
Evolution of Regulation
?
Shri. A. D. Shroff Committee in 1950 Prof. M. L. Dantwala Committee in 1966
?
?
Prof. A. M. Khusro Committee in 1979
Prof. K. N. Kabra Committee in 1993 World Bank Study (in association with UNCTAD) in 1996
?
?
Shroff Committee (1950)
?
Made the draft Bill for Forward Markets Regulation Inputs received from different commercial organizations Led to the Forward Contract regulation Act of 1952 Led to Forward Market Commission (FMC) in 1953
?
?
?
Dantwala Committee (1966)
? ? ? ? ? ?
Review of previous 10 years of FMC Suggest amendments to FCR(A), 1952 Recommended that FMC be made autonomous Futures in export commodities to be allowed Futures contracts defined Options trading not recommended
Khusro Committee (1979)
• Reviewed role of FMC and analyzed markets
• Recommendations ? Not all commodities to be allowed for futures trading ? Condition for trade ( Homogeneity and large demand / supply) ? Allowed Exporters to hedge ? Laid down the possibilities for specific commodities (such as Sugar and Silver)
Kabra Committee (1993)
?
?
? ? ?
To assess the working of commodity exchanges Assess trading practices Assess role of FMC Compare international commodity markets Role of forward trading in price risk management
Kabra Committee (1993) Recommendations
? ? ? ? ? ? ? ?
Exchanges to enlist more members Ensure Capital adequacy norms Encourage Computerization Vigilance Committee and Panel of surveyors Arbitrators (dispute settlement mechanism) Permanent Recognition to exchanges Introduced futures trading in new commodities Allow Indian companies to hedge abroad
The Ordinance:
? The Government had introduced in the Parliament an amendment Bill to amend FCR Act in December 1998. ? The Bill could not be passed as it lapsed with the dissolution of the Lok Sabha in 2003. ? Till about 2000-01, the general approach of the Government was to ban or prohibit the commodity derivatives. From 2000-01 onwards, this market was opened up. ? Today, there are about 100 commodities which are traded on the three national and twenty regional commodity exchanges. The volumes of these markets have grown very rapidly from Rs.1.29 lakh crores in 2003-04 to Rs.36.7 lakh crores in 2006-07. During 2007-08 (till January, 2008), the volumes traded on the commodity exchanges have been Rs.31.60 lakh crores. As per the estimates projected by ASSOCHAM, the trade value would increase to Rs. 74 lakh crores by 2010.
The Ordinance:
? The role of FMC has consequently changed from enforcing prohibition to properly managing and regulating such explosive growth. ? It has so far managed to discharge this role through the instruments of margin, limit on open interest, price limits etc. ? A need is felt to further strengthen and enhance the capabilities of FMC as well as to give it the necessary autonomy by making comprehensive amendments to the FCR Act. ? It was also felt necessary to give FMC the much needed financial and administrative autonomy as well as arm it with requisite legal powers to discharge its regulatory functions effectively. ? In view of this , FC( R) Act was amended by Forward Contract (Regulation) Amendment Ordinance, 2008 .
Salient features of the Forward Contracts (Regulation) Amendment Ordinance, 2008
(a) (b) (c) (d) (e) (f) (g)
(h)
Enhancement of the powers of FMC; Similar to SEBI Corporatisation and demutualisation of the existing commodities exchanges Facilitating setting up of a independent clearing corporation; Registration of intermediaries; Introduction of monetary penalties by way adjudication, Enhancement of penal provisions; Permitting trading in options in goods or options in commodity derivatives; and Constituting SAT as the Appellate Tribunal for purposes of FC(R ) Act
Apart from FC( R) Act , following enactment also govern the commodities market
? ? ? ? ? ? ? ? ?
Mines and Minerals Regulation. Spice Board Cashew Board Coconut Development Board Act Cotton Act Coffee Act Gold Control Act Essential Commodities Act Natural Gas Regulation
Functions of the Commission under FC(R ) Act
? Regulate the business of the associations; ? Regulate the functioning of members of the associations, clearing houses, warehouses and intermediaries; ? Conduct research for the purpose of development and regulation of commodity derivatives market; ? Call from or furnishing to any such agencies, as may be specified by the Commission, such information as may be considered necessary by it for the efficient discharge of its functions; ? Protect the interests of the market participants in commodity derivatives markets; ? Promote and regulate self-regulatory oganisations; ? Prohibit fraudulent and unfair trade practices relating to commodity derivatives markets; ? Promote investors’ education and training of intermediaries; ? Prohibit insider trading in commodity derivative; ? Advise the Central Government as to the goods in respect of which forward contract or option in goods or option in commodity derivative may be notified;
Powers of the Commission
a) b) c) d) e) f) g) h) i) j) k) l) m) n) o) p) Advise the Central Government in respect of matters arising out of the administration. Grant or withdraw recognition of any Association (Exchange) Regulate the business of the associations Regulate the functioning of Members of the association, Clearing houses, warehouses and intermediaries. Levy fees for carrying out the purposes of the FC(R) Act Conduct research for the purpose of development and regulation of commodity derivatives market. Call from or furnishing to any such agencies such information. Protect the interests of the Commodity derivatives market. Promote and regulate self-regulatory organisation. Prohibit fraudulent and unfair trade practices relating to Commodity Derivatives Market. Promote investors’ education and training of intermediaries. Prohibit insider trading. Advise the Central government. Issue directions Impose Monetary Penalties. Investigate any market misdemeanor .
Powers of the Exchange
? To make rules respecting grouping of members, restricting voting rights, etc. in special cases.(section 9 A) ? Powers to make bye-laws.( section 11) How the exchanges are regulated? • Memorandum & Articles of Association to govern • matters relating to company affairs, Board and management • Bye-Laws: Overall framework for regulating trading and settlement • Rules: Matters relating to membership • Business Rules: Micro details relating to trading, • clearing and settlement, delivery, arbitration, etc. • Contract specifications
Penalties are imposed on the following occasion:
• • • • • • • •
Non furnishing of information Failure to maintain books etc. Not entering into agreements with clients Failure to redress grievances Insider trading Unfair trade practices Intermediary defaults Disobeying the directions of FMC
Consequences of non-compliance
? If any person contravenes any of the provisions or rules or regulations then he shall be: ? punishable with imprisonment for a term which may extend to three years or with fine or both. ? liable for monetary penalties ? liable for Directions by the Commission ? Liable for action by the concerned Exchanges
Jurisdiction of the court to try offences under the act
? No Court inferior to the Presidency Magistrate or Magistrate of the first class shall take cognizance or try any offence punishable under the act. ? Civil Courts do not have any jurisdiction -No civil courts have jurisdiction to entertain any suit or proceedings in respect of any matter which an adjudicating officer appointed under this Act or the appellate tribunal is empowered by or under this act. - No injunction shall be granted by any court or other authority in respect of any action taken or top be taken in pursuance of any power conferred under this act.
Exchange role in reviling confidential information.
As per the bye-laws of the Exchange; ? The Exchange may provide or disclose such details , particulars, data or information relating to any business transactions of its members or in respect of any commodity or security admitted to dealings on the Exchange as may be required or directed in writing by; A) Any Court; B) Tribunal; C) Central or State Government; D) FMC; or E) any other competent regulatory; F) Revenue authority empowered under any law or delegated legislation for the time being force in that behalf.
Section 91 of Criminal Procedure Code, 1973
•
Processes to compel the production of things;
“ 91. Summons to produce document or other thing: (1) Whenever any Court or any officer in charge of a police station considers that the production of any document or other thing is necessary or desirable for the purposes of any investigation , inquiry, trial or other proceedings under this code by or before such Court or officer, such Court may issue a summons , or such document or thing is believed to be , requiring him to attend and produce it, or to produce it, at the time and place stated in the summons or order. (2) Any person required under this section merely to produce a document or other thing shall be deemed to have complied with the requisition if he causes such document or thing to be produced instead of attending personally to produce the same.
doc_847495420.ppt