Merger with Sebi will help curb manipulation: Ramesh Abhishek
The commodities regulator Forward Markets Commission (FMC) will be history soon and the market will have its new modern and autonomous regulator in Securities Exchange Board of India (Sebi) next week. The last chairman of FMC, Ramesh Abhishek says the merger will bring more certainty and transparency in the entire commodity space. In an interview with Shrimi Choudhary and Tarun Sharma, he said the market would see more new products and participants, thanks to the collaboration.
How does the merger between Sebi and FMC help the commodity space?Through this merger, the government has strengthened the commodity derivatives market regulatory architecture. The regulation of the market will now improve because Sebi has the all the powers of a modern regulator. The main aim of the merger is to bring discipline and develop the commodity derivative market. New products can come now which were not allowed earlier under FCRA. With Sebi’s regulation, many more participants can participate in the market in due course. The new set-up will increase confidence among investors and the price discovery will be more credible.
Post merger, what you think would be the top most priority for the new regulator?Only Sebi will be able to speak on this better. Right now the first priority is to ensure seamless transition of market regulation from FMC to Sebi.
Sebi has the authority of search and seizure against suspected entities under the new securities law. Will such power help in cracking scams like NSEL in future?Search and seizure, levy of penalty, regulation of intermediaries, etc are some of the powers SEBI has which were not possible under FCRA. These would definitely help in more effective monitoring and surveillance.
Most of the commodity exchanges have seen sharp decline in volumes for last two years, and losing sheen with investors’ confidence on the decline. How should Sebi deal with this to evolve the space? Sebi officials are working hard in past six months to ensure a smooth takeover of responsibilities. We are in constant touch with Sebi and are giving every required assistance to them.
How would foreign institutional investors and banks benefit from commodity space apart from volume additions?Forward Contract Regulation Act (FCRA) does not allow derivative products such as options, index, etc. These would be legally allowed once it will be a part of equities. Similarly, so far, FIIs and banks are not allowed to participate in this market, but it can happen now if allowed by respective regulators.
India is a big market in commodities, but we are still 'price takers' not 'price maker'. When will we be capable of quoting prices globally?We should have an important role in price formation as we are a large producer and consumer of several commodities. Price discovery, of course, requires depth, so that it is credible and people are not able to easily influence the market in a negative way. Larger volumes, per se, cannot be the aim or objective of any market. It really has to cater to the objectives for which the market is set up So, I think market participants can get an array of products over a period of time that will cater to their risk management and investment needs.
Stock exchanges are keen to open new commodity exchanges. Do you think commodity space is prepared for new entities?It is difficult to predict what might happen in future. However, we can expect and be hopeful for market growth under new regulatory architecture.
You are the last FMC chairman, do you have some work which you think has remained unfinished for the development of the commodity market?We could improve the perception of this market by bringing lot of discipline. We also worked with concerned agencies to improve the physical market. That is of course lot of work which will continue.
Do you think that existing participants will face problems with new the regulatory authority?We started to align our regulations with those of security market since 2011. For instance, we issued guidelines on equity shareholding of exchanges, corporate governance, algo trading, settlement guarantee fund, etc, which are in line with Sebi's orders. This would help this market’s integration with securities market.
FMC staff had filed writ petition against Sebi. As out of 41 permanent staff, the regulator has selected 22 officers to work on deputation as per its requirement. Do you think it is a right step at this point in time?We have 41 permanent staff, who have been notified as central government employees. Of them, Sebi has asked for services of 15 which has been done by the government. 7 more officers have been deputed to SEBI by the govt as per their request. Provisions of Finance Act 2015 have guided these decisions.