Commodity Futures and Spot Exchanges

Abstract

Commodity Futures and Spot Exchanges are a part of the larger securities market worldwide. In India, the market is in the developmental stage. However, since the opening up of the market in March 1995, growth has been exponential. The Forward Markets Commission has been regulating the market. Three National Exchanges and 21 other exchanges are functioning in the country. The National Exchanges with online transparent trading and settlement systems account for 97.2% of trading. There are over 20000 terminals all over the country enabling easier access to the stake holders. The turnover in the market has risen from Rs. 6530.74 lakh crores in 2002-03, to Rs. 3316206.92 lakh crores in 2008-09, representing an annualized growth of 830%. This paper takes a peek into the working of the commodities futures market in general and agricultural commodities market in particular. It tries to analyze the purpose, role and impact of agricultural commodity futures on the price of these commodities, particularly in the light of the general perception that the futures market is one of the causes of price rise. The study compares the impact of ban in futures trading on certain agricultural commodities on prices. The study reveals that the impact, if at all, is only marginal. The reasons for the rise in prices have been found to be factors other than futures trading. The study concludes with a suggestion to educate the stake holders to enable healthy growth of the futures market.