FMC set to get more teeth

CABINET DECIDES

The Cabinet on Thursday cleared the proposal to issue an Ordinance for empowering the commodity markets regulator, the Forward Markets Commission (FMC).

The Ordinance will expedite the amendment in the Forward Contract Regulation Act. It will also pave way for introducing options trading in commodities and index-based futures and options as is being done in securities.

The Ordinance will empower the FMC to prepare a regulatory framework for commodity markets and impose stringent penalty on violators. Owing to low penalty, violators flout norms to earn more profits.

Experts see the Ordinance as a precursor to the Bill for the amendment of the Forward Contracts (Regulation) Act, 1952. The Bill is pending before Parliament for the last two years, and is likely to be introduced in the Budget session of Parliament.

Meanwhile, the FMC has started working on the regulations. FMC Chairman BC Khatua said: "The regulator started framing the regulations much before the Ordinance proposal, and is now ready with broker regulation, commodity and portfolio management regulation etc. Other regulations, including the one on penalty provision, are at various stages of completion. We would be ready with all our regulations within 45 days."

Also, the two national commodity exchanges "" the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) "" have started working to launch options trading in commodities as well as futures and options in indices.

The Ordinance will empower the consumer affairs ministry to notify such trading. An amendment in the definition of goods and new concept of commodity derivatives will be introduced. This means derivative contracts for weather, carbon credits and indices may be introduced. The ministry will have to notify that such contracts can be introduced.

The new-age exchanges, which have been expecting the launch of these intangible products for the last two years, are hopeful that the Ordinance will be issued by the president within seven days.

Joseph Massey, deputy managing director, MCX, said, "The approval of the FCRA Bill will enable the industry to grow on many fronts now on the lines of global exchanges, as the bill provides greater autonomy to the FMC. It also allows launch of new products like Options and Indices. The participation of banks, FIIs and institutional investors was also, in some way, linked to the approval of this Bill, because without autonomous regulators these institutions would not have been allowed to participate in the commodity futures market."

The potential for the products like weather derivatives, energy, options and indices is immense. The Ordinance will strengthen the FMC through the appointment of skilled manpower and raise money by way of fees to finance their various expenditure.

The amendment will increase the numbers of commission members from four to nine and also bar the future employment of members with any person dealing with the commodity market or intermediaries.

The Ordinance will also empower the commission to recruit its officers and employees. It also proposes to enhance penalty for defaulters to minimum Rs 25,000 from the current level of Rs 1,000.

The Ordinance will also provide for setting up of an appellate tribunal for the Forward Contract Regulation Act in line with SAT for appealing against the decisions of the capital market regulator.