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Series XVI-Commodity Derivatives-Ver-May 2022-14

This document discusses the history and development of commodity derivatives trading in India. It notes that the first commodity exchange was established in Calcutta in 1919 for trading raw jute and jute goods. Over time, various government controls were placed on trading of certain commodities due to factors like speculation. Key acts and regulations established include the 1939 Bombay Options in Cotton Prohibition Act and the 1952 Forward Contracts Regulation Act. Today, commodity trading in India has advanced with electronic trading platforms, benefiting buyers, sellers and making the sector more efficient. The document goes on to describe spot and derivatives trading of commodities.

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43 views1 page

Series XVI-Commodity Derivatives-Ver-May 2022-14

This document discusses the history and development of commodity derivatives trading in India. It notes that the first commodity exchange was established in Calcutta in 1919 for trading raw jute and jute goods. Over time, various government controls were placed on trading of certain commodities due to factors like speculation. Key acts and regulations established include the 1939 Bombay Options in Cotton Prohibition Act and the 1952 Forward Contracts Regulation Act. Today, commodity trading in India has advanced with electronic trading platforms, benefiting buyers, sellers and making the sector more efficient. The document goes on to describe spot and derivatives trading of commodities.

Uploaded by

antiquehindustani
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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groundnuts and cotton.

In the year 1919, the Calcutta Hessian Exchange was setup which
started trading in raw jute and jute goods. Subsequently, many other commodity derivatives
trading centers emerged across the country in places such as Hapur, Amritsar, Bhatinda,
Rajkot, Jaipur, Delhi, etc.
Due to reasons such as speculation, hoarding, wars and natural disasters, several controls
were placed on trading of certain commodities from time to time. In 1919, the Government
of Bombay passed the Bombay Contract Control (War Provision) Act and set up the Cotton
Contracts Board. With an aim to restrict speculative activity in cotton market, the
Government of Bombay issued an Ordinance in September 1939 prohibiting options trading
in cotton which was later replaced by the Bombay Options in Cotton Prohibition Act, 1939. In
1943, the Defence of India Act was passed for the purpose of prohibiting forward trading in
some commodities (spices, vegetable oils, sugar, cloth, etc.) and regulating such trading in
others on all India basis. These orders were retained with necessary modifications in the
Essential Supplies Temporary Powers Act 1946, after the Defence of India Act had lapsed.
After Independence, the Constitution of India placed the subject of "Stock Exchanges and
Futures Market" in the Union list and therefore the responsibility for regulation of forward
contracts devolved on the Government of India. The Parliament passed the Forward Contracts
Regulation Act in 1952 to regulate the forward contracts in commodities across the country.
The Forward Contracts Regulation Act (FCRA) 1952 was repealed and regulation of
commodity derivatives market was shifted to the Securities and Exchange Board of India
(SEBI) under Securities Contracts Regulation Act (SCRA) 1956 with effect from 28th
September, 2015.
Commodity trading in Indian exchanges has reached a sophisticated level. The exchanges
offer electronic trading platforms for buyers and sellers to manage their price risks better and
to improve the marketing of their physical products. This has made the commodity sector
more efficient and competitive. Globally, exchange-traded commodity derivatives have
emerged as an investment product often used by institutional investors, hedge funds,
sovereign wealth funds besides retail investors. There has been a growing sophistication of
commodities investments with the introduction of exotic products such as weather
derivatives, power derivatives and environmental emissions trading (carbon credits trading).

1.2 Spot and Derivatives Trading in Commodities


Commodities can be traded in both the spot market as well as the derivatives (forward and
futures) market.1 Although the two markets are different in terms of time of delivery and
other terms of trade, they are inter-related. The commodities are physically bought or sold
on a negotiated basis in the spot market, where immediate delivery takes place. The physical
markets for commodities deal in cash (spot) transactions for ready delivery and payment.
There are two main types of commodities that trade in the spot and derivatives markets:

1
Please note that the terms cash market, spot market, physical market, mandis, APMC have been used
synonymously in this chapter.

13

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