Mumbai: Commodity market regulator Forward Market Commission (FMC) wants banks, mutual funds and FIIs to actively participate in forward trading in commodities.

"It is very important for the growth of commodity market in India that the government should allow mutual funds, banks and FIIs," FMC chairman S Sundareshan said.

He favoured a gradual entry of financial institutions in commodity markets. To start with, he said, FIIs should be allowed to participate in bullion, metal and crude commodities while banks should be permitted in agricultural commodities. Sunderashan was delivering a lecture on 'Commodity Futures in India' in Ludhiana.

FMC has launched a project to study the impact of futures trading on the prices of agriculture commodities. The project is being carried out by IIM Bangalore. "They will be submitting their report in the next couple of months," he said.

"The main purpose of forward trading was price discovery of a particular product at a given point of time," he said. The FMC chairman said less than two per cent volume was taking place in deliveries anywhere in the world.

FMC, he said, has proposed penal action against erring members of commodity markets and the Forward Market (Regulation) Act Amendment Bill is aimed at safeguarding the interest of the clients.

"Besides enforcing `Know Your Customer' (KYC) norms strictly, we have also proposed auditing of books of all members every three years," Sundareshan said, adding that this year about 100 auditors would do the audit.