FMC move to prevent conflict of interest comes in the way of companies’ plans
Forward Markets Commission today said companies like Reliance Anil Dhirubhai Ambani Group and Kotak Mahindra will have to wait before entering the commodity bourse arena as the regulator is still working on preventing conflict of interest that may arise from brokers turning exchange promoters.
“I do not want this market to be a gambling place,” FMC Chairman B C Khatua said in an interview, adding that the guidelines on conflict of interest may take a month or two to be finalised.
“We must clearly understand the legitimate role of speculation in the futures market...The legitimate speculators are a well regulated risk-taker, a risk transferor and then a transferee, without whom market cannot function... But, risk transferors can not transfer risk to themselves,” he noted.
Khatua said there was nothing to worry about a big corporate house owning an exchange “except that there should not be conflict of interest between its role as the owner and its other roles, if any”.
It would be deemed as conflict of interest if an owner also has a broking house and it holds direct position in the market and owns the exchange, he explained. Reliance and Kotak are the only two applications that FMC is currently holding for approval, Khatua said.
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Khatua said FMC guidelines make it clear that any firm promoting an exchange and has a direct or indirect relationship with a broking firm would not be allowed to trade on the exchange.
“Besides, after establishing the exchange and bringing stability to it, they will have to start divesting their stake and bring it down to 26 per cent after three years,” he said. “What happens after five years, that we have left open” to enable a regulatory system that evolves as the market matures, he added.
Khatua said the regulator favours the idea of one anchor investor in an exchange, rather than four-five anchor investors each holding some stakes. “Basically, the idea is that there is some identified entity who takes personal initiatives, as a corporate, to see the growth of the institution,” he said.