``We want only exchanges which function properly. No commodity exchange can thrive unless it provides for contract guarantees,'' secretary, consumer affairs in the food ministry, K Srinivasan, said.

The consumer affairs supervises the functioning of the Forward Markets Commission (FMC), which regulates commodity exchanges and trade in the country.

Srinivasan was responding to a query on the FMC making it mandatory for commodity exchanges to extend contract guarantees to buyers and sellers.

``Contract guarantees should be a wing of the exchange or part of other body connected to the exchange. It is required as buyers and sellers want confirmation. It gives credibility to the transactions,'' he said.

The FMC's directive to various commodity futures exchanges, includingpepper, jute and castor, in the country to provide for contract guarantees and it has led to problems in the domestic pepper and jute exchanges.

``The problems are internal between the exchange members,'' he said.

With the pepper exchange unable to meet the requirement so far, the FMC is yet to give clearance for forward contracts beyond August, which expires on August 15.

However, the Indian spices and pepper trading association (IPSTA), which runs the exchange, has appointed two consultants to work out different options and methods for contracts.

IPSTA has decided to set up a separate guarantee fund, ignoring an offer from the first commodity clearing corporation of India (FCCCI), the bourse's clearing agency, to provide guarantee for forward contracts.

The east India jute and hessian exchange, on the other hand, has told the FMC that it could provide the contract guarantee only from May next year onwards.

No forward contract has been allowed in the jute exchange since February as the bourse hadwitnessed large contractual defaults.

``The FMC has only asked these exchanges to comply the by-laws framed with them. How can trading be done without any guarantee of the contracts ? '' Srinivasan wondered.

Government would be tough with new exchanges as it wanted them to function properly and was in no hurry to allow new exchanges, he said.

Though government preferred screen-based trading at the futures exchanges, it was not against the traditional ``open outcry'' system, he added.