Come September, FMC may have been merged with Sebi

FMC asks commexes to expedite members' audit ahead of regulatory merger

The government is finalising the formalities for the merger of commodity derivatives market regulator Forward Markets Commission and the Securities and Exchange Board of India (Sebi) by September. The FMC authorities met representative of three leading commodity exchanges MCX, NCDEX and NMCE and asked them to complete pending work relating to auditing of members and other procedures.

This has been necessitated because after the merger, the members of the commodity exchanges will have to get registered with the Sebi. However, FMC advised the exchanges if any procedures are incomplete, Sebi will not register members and without registration, they might not be allowed to continue trading. It is quite likely that Sebi will give time to members to complete registration formalities.

Commodity exchanges conduct audit of members. The FMC has also asked exchanges to be ready with action taken report. The FMC has also delegated some more powers to exchanges regarding approving profiles of members, which include changes in names, directors, address, shareholding and such other details. So far such changes were approved by the commission. As per Sebi norms, stock exchanges already enjoy powers to approve changes in the profile of members and stock exchanges are front-end regulators.

There are many members common for equities/currencies/commodities but they have to form separate companies to meet different regulatory requirements. After FMC merges with the Sebi, commodity exchanges will become stock exchanges and common members believe they will merge the commodity and equity companies also, but how Sebi will allow that will also have to be seen.

When commodity exchanges move to Sebi, even exchanges will have to get themselves formally registered with the Sebi. Commexes will also have to change their by-laws to suit provisions of Sebi.

Several other issues also came up in meeting of FMC and exchange officials held on April 30, where issues showing different practices in securities and commodity derivatives market were discussed. The government-appointed committee is at present trying to sort them out.

The merger of two regulators was proposed by the finance minister as part of the Budget. The required changes will be approved along with the approval of finance Bill and the whole process of legal changes is likely to be approved by the end of this month.