FICE, a Section 25 company registered under the Companies Act, 1956, awaits the clearance of its Memorandum and Articles of Association from the Registrar of Companies (RoC). FICE was informally announced in late 1998.Interestingly, even when the Indian comexes are preparing themselves with online trading facilities, it is the government which seems to be dithering on strengthening the commodity markets regulator, the Forward Markets Commission (FMC) without which it would be difficult for both the commexes and the FICE to be as effective as they are expected to be.

Says FMC's acting chairman Mr Baldev Chand: ``FMC will take another 12 months to strengthen itself and be as effective as it should''. Mr Chand was forced to take the reins at the poorly staffed FMC, earlier this year when its chairman Mr KC Misra (who took charge in mid-1999) decided to return to his base camp in Andhra Pradesh after a year's stint as FMC chairman. FMC chairman's tenure is for three years.

``We have recommended to the government to fill the important vacancies, including that of enforcement director, but the ongoing downsizing of the bureaucracy within the government will not see any new postings at the FMC'', says Mr Chand.

According to Mr Chand: ``We are trying to be proactive as per the recommendations of the World Bank's senior advisor Lamon Rutten. Changes are coming around with daily clearing being enforced and the comexes being asked to go online, induct outsiders as directors and impart transparency, but all this will take time''.

But these changes mean little when there's negligible trading on the official comexes, thanks to the thriving parallel markets, where guns come out to settle dues. The ratio of trading in commodity futures on the Bombay Oilseeds and Oils Exchange (BOOE), claiming to be one of the leaders of the pack, and the parallel markets is said to be 1:10!!

The rampant unhindered trading in parallel futures markets prompt the players on the official exchanges to question the existence of the FMC as a serious, committed commodity market regulator, more so when there have been no raids to nab players on these illegal markets.

Over the last three years,there were three unexpected changes at the FMC's chairman level, leaving unattended the most burning issue of putting an end to the vibrant parallel/illegal commodity futures market in parts of Mumbai, Gujarat, Delhi and other centres. The existence of these parallel markets hampers the vibrancy (in terms of volumes and liquidity) in the 15-plus official and registered commexes in the country.

What is more, even as the FMC is asking the commexes to computerise its activities and go online spending few crore of rupees, FMC's own activities and records are far from being available on computers.

Not just computerisation, even strengthening of the FMC's board by inducting outsiders is said to be avoided. Says Mr Chand: ``At this stage, a bigger FMC board is not required, and like Sebi we too can manage with the suggestions of outside experts and consultants to upgrade our activities so as to strengthen the comexes''.

It is because of this uncertain atmosphere on the regulatory scene some of the big players like Hindustan Lever Ltd seem reluctant to enter the Indian commodity exchanges to hedge their commodity related requirements. Says HLL's Shvetal Vakil, (general manager, agri products exports): ``With the advent of modern information technology, futures markets are increasingly becoming more and more sophisticated and several newer products and derivatives are being introduced... But the success of futures exchanges to a great extent will depend on a strong regulatory framework from day one ... It is imperative that corrective action is initiated by the government in terms of proper enforcement and systematically weeding out parallel futures contracts in operation.''

And all this when India has a strong tradition of efficient structure of cash or physical market for commodities, where millions of tonne of produce are brought to mandis and sold by a highly transparent auction system. But as all the futures contracts have to be ``anchored'' within cash market it is absolutely necessary that we have manipulation-free cash markets, which fortunately is in place, says Mr Vakil. During the year, one of the most important development that promised the emergence of Indian comexes on the global arena was the introduction of trading in RBD palmolein (mainly imported from Malaysia and Thailand) on the Bombay Oilseeds and Oils Exchange (BOOE) alongwith trading in futures of two other edible oils - groundnut oil and sunflower seed oil. Sadly, though because of the thriving parallel markets and the penchant of even some of the BOOE office bearers themselves to trade in the parallel markets, the volumes on the BOOE continues to remain pathetic, to say the least.

Lastly, it is almost 27 months since the government and the Reserve Bank of India (RBI) gave permission to the cross section of Indian corporates to hedge their commodity and price related requirements on the international commodity exchanges. As many as 45 entities engaged in non-ferrous metals, agro-produce and gold among couple of others are said to have sought the RBI's permission to hedge on the overseas comexes. This number may be small, but given the incomplete transformation of Indian comexes and the absence of a strong regulatory set up, the vacuum is too large and wide for the Indian players to hedge their requirements on the Indian comexes.

``This is detrimental for the players on the Indian markets,'' said an office bearer of a leading commodity futures exchange.

At a time when global players in commodity markets, including commodity specific funds and members of leading comexes are considering to set up shop in India, it remains to be seen how and when the government and the FMC musters up courage to strengthen the regulatory mechanism to effectively help the corporates to hedge their commodity and price related risks on the Indian commodity exchanges.