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It is my pleasure to be present on this occasion when we meet in the
financial and business capital of the country for the Golden jubilee day
of the Forward Markets Commission (FMC). It is to honor the occasion
that the Third National Conference of Commodity Exchanges has been
organized. This should give us an opportunity not only to feel happy
about the day but to take stock of the situation and jointly chart out
an agenda for broad-based and fast growth of the market characterized by
best global practices and performance.
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As you are all
aware, the institution of commodity futures market in India is one of
the oldest in the world. The Bombay Cotton Trade Association was
established in 1875, which traded in cotton contracts. Futures
trading in many other commodities like oilseeds, food grains and
bullion were thriving during the pre-first World War period and part
of the inter-war periods. The onset of scarcities due to ward and
problems of adequate production and imports, resulting in rising
prices, futures trading had to be banned in most of the commodities to
avoid speculation and further rise in prices from the early sixties
which continued until recently.
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Government have
recently taken several measures to revive the futures trading. There
have also been a number of developments initiated on the part of the
Exchanges in the past few years.
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By
means of decisions in August 2002 and April 2003 prohibition on futures
trading in 81 commodities was removed. From April 1st,2003
therefore all commodities are permitted for futures trading. This was a
momentous decision of the Government considering the fact that we had
only 6 commodities and that too low volume ones, allowed for futures
trading in 1997. Now the commodity basket includes voluminous items
such as wheat and rice, gold and silver etc. I may also say that
futures trading in these major items will be commenced in one of the
nation wide multi commodities exchanges, namely, the National Multi –
Commodity Exchange , Ahmedabad shortly.
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The
Government in its endeavor to remove restrictions on physical trade in
commodities removed party-to-party forward contracts in commodities (NTSD
contracts) from the purview of the Forward Contracts ( Regulation) Act.
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In
order to improve trading practices and utilizing the advantages of
modern technology, along with the domain knowledge, we have been
pursuing the idea of setting up modern, professional, de-mutualised
exchanges having national reach through electronic trading system for
the past 2-3 years. Four such nation wide multi commodity exchanges
have been approved by the Government during January – February 2003.
One of them is already functional (National Multi Commodity Exchange of
India , Ahmedabad), another one ( National Board of Trade, Indore)
functioning as a regional Exchange, having the maximum trading volume as
of now (Rs. 70,000 crores in 2002-03), and two new
Exchanges, namely National Commodities and Derivatives Exchange ( NCDEX
) and Multi Commodity Exchange ( MCX ) are all at different stages of
upgrading / commencing their operations. All these Exchanges are
mandated to commence operations as nationwide multi commodity exchanges
by October end-early November, 2003. In addition the Government have
also given in-principle approval to 7 more regional exchanges apart from
the 22 operational ones.
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Responding to
the above major initiatives of the Government, I am happy to note,
many of the Exchanges are coming forward with implementing various
reform measures that the Government and the Regulator have been
advocation. The nationwide multi-commodity exchanges ( MCYs). As
already indicated are adopting modern governance practices such as de-mutualisation
and have entered into a host of value added services such as tying up
with warehousing corporations, independent clearing, gradation and
certification systems. The Exchanges are also gradually moving
towards electronic trading system and some of them are going in the
direction of de-mutualisation. I would urge all these Exchanges to
complete the process at the earliest.
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It is
encouraging to note that even when the reforms are being implemented
it is getting reflected n trading volumes and values. For instance,
futures trading in terms of value increased from Rs. 345 billion in
2001-02 to Rs. 1.02 trillion or 1,00,000 crores during 2002-03. in
terms of volumes the increase has been from 220 lakh tones to 414 lakh
tones during the same period. Though the base has been rather narrow,
annual growth by the tune of 200-300% are impressive by any
yardstick. The major increment has been accounted by one or two
Exchanges and a few Commodity. The performance in the first quarter
of 2003-04 is also quite encouraging. Volumes have increased from
about 76 lakh tones to 126 lakh tonnes in April-June 2003 compared to the
corresponding period in 2002-03 and in value terms from over Rs,15,000
crores to Rs. 40,000 crores. The overall value of trade is likely to
reach Rs. 2,00,000 crores during the full year. Considering that in
the year 1999-2000 the value of trading was only Rs. 22,000 crores a
potentially 10 fold increase will be rather a creditable achievement.
But the growth has to be broad-based so that liquidity increase is
shared by a number of Exchanges and several commodities.
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One of the areas
in which I am personally interested is generation of awareness about
commodity futures trading and its advantages. We have done a lot in
encouraging futures trading in terms of additional commodities, modern
institutions and a host of related policies. Unless the message
regarding the benefits of futures trading reaches the ultimate
beneficiary – the producer – all our efforts would be only half
successful. Therefore, I earnestly urge all those who have assembled
here, particularly the Exchanges, to take the message in a large scale
in tune with the magnitude of the country, to the producers of all the
commodities so that they benefit from the price discovery and risk
management functions of futures markets. A concerted effort from the
part of all of us will be required for the same. In this context I
would urge the Exchanges to utilize all the advantages of modern
technology such as ‘e-governance’ in spreading the messages of the
benefits of futures trading apart from conduction awareness camps,
seminars etc.. in various parts of the country. I have already
directed the officials concerned in my Ministry to utilize the
services of the District Consumer Information Centres and other
consumer for as well in spreading awareness on this subject also. I
would urge all stakeholders to work together with the Forward Markets
Commission and my Ministry to achieve this.
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Modernisation of
the commodity Exchanges is critical in the context of opening up of
the entire set of commodities for futures trading. In fact all the
“best practices” suggested for implementation in the Exchanges such as
online trading, daily mark to market margining, time stamping,
professional, independent Directors, computerized operations,
electronic trading, modern settlement and clearing practices etc. are
all with the purpose of making our futures trading at par with the
rest of the world. This will be needed since commodity trading,
including derivatives trading, will be hereafter benchmarked upon
global standards given the external sector liberalization. Our joint
endeavor, therefore, will be to provide institution of World Standard
with global best practices.
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What is emerging
is a combined effort of all the stakeholders, the Government including
the Regulator, the Exchanges and their members, the ancillary
institutions such as warehouses etc. These combined efforts should
leverage the endeavor of promoting futures trading to newer heights in
the immediate future. Along with liberalization and adoption of
modern practices we are also proposing to assist the market in this
endeavor by means of a Market Development Committee which my Ministry
will be setting up shortly comprising eminent personalities in the
field of commodities, finance and other related fields. This
Committee will give their expert opinion / advice to the Government
based on which we will be able to chart out the future courses of
action. We are also aware of the limitations of the regulatory
structure, which is one of our priority areas of action. The task
Force set up by Ministry under the Chairmanship of Shri Wajahat
Habibullah, Secretary, Department of Consumer Affairs has already done
their basis work and hosted the draft report in the website of the
Department and the FMC for public comments. The final report will be
submitted shortly and along with the inputs from the IIM, Lucknow,
will form the back bone of further Governmental action in this
regard. Our collective endeavor will be to make the Regulator one of
the most credible institutions in the area globally and immediate
steps will be taken with this objective in mind.
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With this
earnest hope, I formally inaugurate this conference and the Golden
Jubilee function of the FMC. I shall be looking forward to the
suggestions and recommendations of your deliberations today, in
achieving our collective objectives and goals.
Thank you |