 "Unified licence to be key item at Ajay Tyagi's first board meet")
The Securities and Exchange Board of India (Sebi) is planning to allow a single licence to brokers to operate in the equity and commodity markets. Such an amendment is set to be made in rules pertaining to market intermediaries institutions (MIIs), which are currently under regulatory review. The announcement is likely to be made at Sebi’s upcoming board meeting, which could be held next month.
This move could be the first important step by Sebi under new Chairman Ajay Tyagi, who hinted at the improvement of commodity space as a priority. The amendment would be brought in the SECC (Stock Exchanges and Clearing Corporations) norms governing stock exchanges, clearing corporations and depositories. Sebi has issued a consultation paper to review the existing norms and sought public comments till March 31.
At present commodity market intermediaries, which are now regulated by Sebi following the absorption of the Forward Markets Commission (FMC) into it, adhere to different guidelines and requirements.
Sebi is in the process of finalising the guidelines and criterion to have a common set of intermediaries for both equity and commodity segments, said an official. Once it gets implemented, investors can get a common contract from the entities which include the commodity business. Perhaps, also a common registration number for all exchanges, unlike now.
Sources said the markets regulator is also considering revising the minimum capital requirement for brokers. Sebi may even prescribe a flexible net worth, depending on the size of that particular entity.
Current net worth, the amount a broker keeps with an exchange, is based on a formula prescribed by the J R Varma Committee. It was set up by Sebi in 1998 to provide a method for fixing the initial margin on index futures contracts, and prescribes liquid net worth requirements for participants, from clearing members to trading members.
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Trading members say a unified licence regime will bring down the cost of operations for brokers and increase their margins. “This goes right in line with ease of doing business. At present a broker needs to manage two different sets of infrastructure to facilitate both the verticals. The integration will save lot of cost which will automatically pass on to the investors in terms of better and improved services,” said Mehul Patel, member, BSE Brokers Forum.
“This was the purpose of merging two regulators to have harmony and similar stature. The interoperability will also create an environment for a level playing field,” said Sandeep Parekh, founder, Finsec Law Advisors.
The commodity space is evolving and the time had come when one could allow each lot of brokers to operate in the other segment, Parekh said, adding, such a framework is needed for seamless market operation.
Besides, Sebi is also mulling to allow equity exchanges to function in the commodity space and vice versa. And also allow mutual funds (MFs) to participate in the commodity segment. The current Sebi regulations do not permit an equity exchange to trade in commodities and vice versa. Separate exchanges, therefore, are required to offer trade in different financial segments.
The Sebi board in December 2009 had constituted a committee under the chairmanship of Bimal Jalan, former RBI governor, to examine issues arising from the ownership and governance of MIIs.
The committee had recommended that the working of MIIs should be reviewed by Sebi every five years, as the stock market is evolving and a review may be inevitable in light of the new technological developments, introduction of new products, growth of financial markets, trade and capital flows and global integration. The period of five years from the date of its notification will get over in June.