A Study on Commodity Futures Markets in India

G. Chinni Krishnudu

Abstract


Commodity derivatives are not exactly new to India. In fact forward trading in commodities existed in India from ancient times (it is mentioned in Kautilya’sArthashastra) and the first modern futures market was established in 1875 for cotton contracts by the Bombay Cotton Trade Association, just a decade after CBOT traded its first future. Oilseed and food grain futures followed and before the Second World War, futures were being traded on commodities like wheat, rice, sugar, groundnut, groundnut oil, raw jute, jute products and castor seed as well as precious metals. During World War II futures trading was prohibited to contain runaway speculation and illegal hoarding. After independence, the Forward Contracts (Regulation) Act was enacted in 1952 to regulate the trading in forward and futures trading. The Forward Markets Commission which oversees forward trading was instituted a regulatory body the following year. The Act applied to all contracts whereby the delivery of goods occurs after a period longer than 11 days. Futures contracts were viewed as a subset of standardized forward contracts and were never formally defined in the Act.


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