 "FMC moves to the Ministry of Finance")
The notification issued by the president Pranab Mukherjee yesterday said that the FMC which has been working under the ministry of consumer affairs, department of consumer affairs, will move to ministry of finance under the department of economic affairs. Now most agencies investigating NSEL issue are reporting or coordinating with the ministry of finance and hence, “a coordinated action will be possible in the NSEL case,” said a regulatory source. Till recently the officials of finance ministry have been saying that they don’t have powers to take actions against the NSEL.
One of the reason that led to crisis at the NSEL, was that it being a spot commodity exchange, there was regulatory vacuum. However, NSEL wanted to allow one day forward deals which allowed such exchanges to square off their positions intraday but to ensure that that should not considered as a futures, they along with two other spot exchanges had received an exemption from ministry of consumer affairs and using that powers ministry stopped all such deals on the NSEL in July. When crisis emerged at the exchange after it suspended the trading, ministry gave powers to FMC to solve NSEL issue.
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With the FMC going to Fin Min, “these powers get automatically vested with the finance ministry,” explained the regulatory source.
The notification to move FMC to finance ministry said that, ‘matters relating to the futures trading and the forward contract act and FMC,’ will be under department of economic affairs, under the ministry of finance.
With the finance ministry getting powers to take actions against guilty in case of NSEL, slew of actions in the case of NSEL could come in days to come. Enforcement directorate has already submitted report on its findings which has suggested that members/borrowers of the NSEL have resorted to money laundering and Income Tax department has also found that money raised on the NSEL has been deposited in the accounts of the borrowers. Sebi, a capital market regulator and the RBI are also finding out if there is systemic risk of the fall out of NSEL crisis.
All above agencies/regulators report or coordinate with the finance ministry.
What next?
Sources said that FMC which had already warned the board of NSEL that their ‘fit and proper’ status is under risk could pursue action on that front. This will have implications for other regulators also. The promoters of NSEL, which is FT group has also promoted MCX, a commodity futures exchange, a stock exchange MCX-SX and a power exchange Indian energy exchange (IEX) and if promoters are not fit to run one exchanges (NSEL in first place), other regulators shall have to take cognizance and may have to declare them unfit to run exchanges under respective other markets as well. Final decision on this will be taken after two task forces set up by the finance ministry submit their reports.
FMC had also issued couple of notices to futures exchange promoted by the FT group, MCX. First it has said the exchange cannot enter in to any financial transactions without its permission. This was a precautionary move by which it prevented MCX from bailing out its promoters. Second was in case of in case of an NSEL promoted company and its clearing member Indian Bullion Merchants’ Associations (IBMA) which had traded on MCX and was seen by the FMC as violation of its norms. FMC is expected to take punitive action in this case after moving under finance ministry.