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VII. ILLEGAL DERIVATIVE
TRADING
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97.
What is FMC doing to curb illegal forward trading ? |
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Under the Forward Contracts
(Regulation) Act, 1952 most of the contravention of the provisions of
the Act constitutes cognizable offences. The powers of search, seizure
and investigation are therefore with the State Police Authorities. The
role of Forward Markets Commission is confined to communication of
information relating to offences under the Act to the police authorities
and assist such authorities in scrutinising documents referred to by
them in rendering such expert advice as may be required by them (Please
see Rule 13 of the Forward Contracts (Regulation) Rules, 1954).
Since the offences under the Act are technical in nature and it is
difficult to prove the charges in accordance with the rules of evidence
contained in the Evidence Act, beyond any reasonable doubt, the Forward
Markets Commission periodically conducts training progammes, Seminars,
Workshops etc. for the benefit of Police Officers/ Prosecutors and also
Judicial Magistrates First Class/Metropolitan Magistrates. The officers
of the Commission also accompany the police in conducting searches to
assist in sifting incriminating documents. Commission also exhorts the
office bearers and the members of the recognized exchanges to share
information in respect of illegal forward trading. |
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98. What
types of contracts are illegal? |
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The following contracts are
illegal. |
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Forward Contracts in the
permitted commodities, i.e., commodities notified under S.15 of the
Forward Contracts (Regulation) Act, 1952, which are entered into other
than : (a) between the members of the recognised Association or (b)
through or (c) with any such members. |
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Forward contracts in
prohibited commodities, i.e., commodities notified under section17 of
the Forward Contracts (Regulation) Act, 1952 (Presently no commodity has
been notified under section 17 of the Act) |
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Forward Contracts in
contravention of the provisions contained in the Bye-laws of the
Exchange, which attract section S. 15 (3) of the Act. |
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Forward Contracts in the
commodities in which such contracts have been |
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Options in
goods. |
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99. Who can
be arrested and prosecuted under the Forward Contracts (Regulation) Act?
For what offences? |
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The following persons attract penal
provisions under the F.C. (r) Act,1952 |
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(a) |
Owner or tenant of a place
which is used, with the knowledge of such owner and tenant, for entering
into or making or performing, whether wholly or in part, illegal forward
contracts; |
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(b) |
A person who, without
permission of the Central Government, organizes or assists in organizing
or becomes a member of any association other than recognized association
for the purpose of assisting in, entering into, or making, or,
performing; whether wholly or in part, in illegal forward contract; |
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(c) |
Any person who controls,
manages, or assists in keeping any place, other than recognized
association for entering into, or making, or performing illegal forward
contract, or for clearing or settlement of such contracts; |
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(d) |
Any person who willfully
misrepresents or induces any person to believe that he is a member of a
recognized association or that forward contract can be entered into or
made or performed, whether wholly or in part through him. |
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(e) |
Any person who is not a member
of a recognized association canvasses, advertises or touts in any
business connected with forward contracts in contravention of the
Forward Contracts (Regulation) Act, 1952. |
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(f) |
Any person who joins, gathers,
or assists in gathering at any place other than the place of business
specified in the bye-laws of the recognized associations for making bids
or offers or for entering into illegal forward contracts. |
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(g) |
Any person who makes publishes
or circulates any statement or information, which is false and which he
either knows, or believes to be false, affecting or tending to affect
the course of business in forward contracts in permitted commodities. |
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(h) |
Any person who manipulates or
attempts to manipulate prices of forward contracts in permitted
commodities are liable for punishment under the Act on conviction. |
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100. What is bucketing? |
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Broker is said to be indulging in
bucketing, when he takes directly or indirectly, the opposite side of a
customer's order either on his own account or into on account in which
he or she has an interest, without executing the order on an Exchange.
Appropriation of clients' trade without written consent constitutes
contravention of Section. 15(4) of the Act and is punishable under
Section. 20(e). |
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101. What is Options in
goods? |
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Options in goods is an agreement by
whatever name called, like, Teji- Mandi, Jota Fatak, Najrana, under
which buyer of the option (called as applier) pays a premium to the
seller of option (called as writer of the option) for acquiring from him
right to buy or sell the goods at a mutually agreed rate (called as
strike price), in respect of which the premium amount is paid. When the
buyer acquires right to buy, it is called as a "call" (Teji)
and when he acquires right to sell it is called a "put" (Mandi)
option. It is possible to acquire a rights both to buy and to sell the
goods; but in this case higher premium amount would have to be paid. The
buyer acquires only right, i.e., he is under no obligation to buy or sell,
as the case may be, at the mutually agreed price. Options in goods are
presently prohibited under section 19 of the Act. There is a proposal to
amend the Act to allow options in goods under regulated conditions. |
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