The government has decided to merge the commodity regulator Forward Markets Commission (FMC) with the market regulator Securities and Exchange Board of India (Sebi) to smoothen the functioning of commodity markets and reduce speculation.
The government has decided to merge the commodity regulator Forward Markets Commission (FMC) with the market regulator Securities and Exchange Board of India (Sebi) to smoothen the functioning of commodity markets and reduce speculation.
"I propose to merge the FMC with SEBI to strengthen regulation of commodity forward markets and reduce wild speculation," finance minister Arun Jaitley said in his budget speech.
"To execute this, the Securities Contract (Regulation) Act (SCRA) will have to be amended to add the definition of commodities derivatives as securities," a senior FMC official told dna.
The move was largely expected in the aftermath of the Rs5,600-crore scam at the National Spot Exchange Ltd (NSEL) that surfaced in July 2013 as a payments crisis.
"This will definitely boost commodity derivative markets. I do not see this move can be seen as the repercussion of NSEL crisis. This is the start of FSLRC (Financial Sector Legislative Reforms Commission) recommendations, which was due in Parliament since long," added FMC officials.
However, at present, Sebi doesn't have the expertise to regulate commodities. Several commodities are settled against deliveries, which are physical in nature unlike deliveries of shares and bonds. Hence, the rules on these issues could take time, said a government source.
"Objectively, it could lead to the merging of the Forward Contract Regulation Act (FCRA) with SCRA and therefore faster introduction of new products in commodities like options and indices trading. Eventually this could also mean a common clearing house across assets, giving people access to all trading assets," said Jayant Manglik, president, retail distribution, Religare Securities Limited.
In less than two months after the crisis, the commodities market regulator was moved to the finance ministry from the consumers affairs ministry. A notification to bring FMC under the ambit of the finance ministry was issued by the government on September 6.
It was widely believed that bringing FMC under the finance ministry would help in better coordination between regulatory bodies like Sebi, Insurance Regulatory and Development Authority (Irda) and Pension Fund Regulatory and Development Authority (PFRDA).
The FMC is a statutory body set up in 1953 under the Forward Contracts (Regulation) Act, 1952 and regulates the commodity market in India. It is currently headed by Ramesh Abhishek. On January 12, Abhishek was given a three-month extension till April 7, the third such extension given to him.
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