FMC merger with Sebi put off

The merger of the Forward Markets Commission (FMC) and the Securities and Exchange Board of India (Sebi) is understood to have been postponed, at least for the near future.

FMC has been asked to go ahead with the appointment of 20 experts, which the commission had sought earlier. It is felt these appointments will strengthen it’s regulatory functions. To improve coordination between the two entities, a move to shift the FMC’s office to the Bandra Kurla Complex, close to the Sebi office, is expected soon.

Sources in the know said the union finance ministry had received a proposal to merge the two regulators two months ago, but considering the sensitive nature of the agri commodities market, it was felt commodity derivatives, especially agri commodities, required a sharp focus and this was best under a separate regulator.

UNION UNLIKELY SOON

• The commodity derivatives regulator has been asked to go ahead with the appointment of 20 experts, which it had proposed earlier
• To improve coordination between the two entities, a move to shift the FMC’s office to the Bandra Kurla Complex, close to the Sebi office, is expected soon
• Sources in the know said the finance ministry had received a proposal to merge the two regulators two months ago but considering the sensitive nature of the agri commodities market, it was felt commodity derivatives, especially agri commodities, required a sharp focus and this was best under a separate regulator
• Even the Forward Contract Regulation Act, 1952, and the Securities Contract Regulation Act need amendment if a merger of two regulator has to take place, which is not a priority for the government, it is learnt

It is understood Sebi has conveyed to the ministry its unwillingness to bring commodity derivatives under its purview. It said until Sebi Act, 1992, was amended to include commodities derivatives, it couldn’t be merged with FMC. The Forward Contract Regulation Act, and the Securities Contract Regulation Act, have to be amended.A merger of the two regulators was suggested earlier, too — by the Wajahat Habibullah committee in 2003; the Percy Mistry committee in 2007; and the Raghuram Rajan committee in 2009.

Last year, the Financial Sector Legislative Reforms Commission recommended a unified regulator for securities, commodity futures, pension and insurance markets. After bringing FMC under its administrative control, the finance ministry had initiated steps to converge the regulatory mechanisms of the commodities and securities markets to arrest regulatory arbitrage, if any.

 

Both the markets that is commodities and securities are fundamentally different. In securities when prices are rising everybody gains and no one complaints while in commodities when price goes up sellers benefit while users suffers. This fundamentally different nature of the market has helped FMC stay independent, said the source.

 

FMC has initiated several reforms in last two years to regulate agri commodities and make the trading safer. Even economic survey for 13014 had said that commodities futures are playing important role in price discovery.