'Awaiting FCRA changes to empower us'

Forward Markets Commission (FMC) is gearing up to emerge much more powerful in the future.

It is formulating several regulations, which may come into force once it is empowered to enforce them. In an exclusive interview with Rajesh Bhayani, FMC Chairman S Sundareshan spoke on the recent controversy over a chilli futures delivery from NCDEX, and the reasons behind the closure of trade on the exchange for more than half a day last month.

He also discusses how FIIs and mutual funds will be regulated when allowed to trade in commodity futures. Excerpts:

What are FMC's goals as the regulator of commodity markets?

This year is a year of consolidation. Commodity futures turnover till October this year has crossed the turnover of the entire last year of Rs 21 lakh crore. This year will see growth of 70-80 per cent over last year.

Our aim is to ensure that investors and participants have a complete faith in the system "� in the market. Transparency and proper regulations have to be there. With the passage of the Forward Contract Regulation (FCR) Act, all these will be fulfilled.

We investigate all complaints "� whether it involves an individual or an association. We want to assure that we act upon all the complaints that we receive.

The Bill amending the FCR Act is expected in the winter session of Parliament. What are your preparations for this?

The present Act, meant for the control regime, requires to be changed. Also, the commodity futures market, which is growing fast, needs to be regulated.

And for that, the regulator has to be powerful. The Sebi should be a useful guide to us. We are drafting several regulations for comexes, their members, the members' relations with clients, role of intermediaries and so on after Sebi guidelines.

Although a small document, the Act will give us the powers to prepare and enforce regulations. The Bill also deals with the scope of the FMC board, which, out of a total of nine members, will have three or four of them as full-time and the rest part-time.

It will also be able to take outside expert as a member. SAT (Securities and Appellate Tribunal) will play the same role for commodity futures as well.

Do you favour allowing mutual funds and FIIs in commodity futures at this juncture?

We had many rounds of discussions with the ministry on this and suggested that they be allowed to trade only in bullion, metals and crude oil.

We also made it clear that FMC would not reinvent norms for regulating them. Under the present regulations, we will follow the Sebi to look into issues such as directors' role and various other issues. We will allow and regulate them in their participation in commodity futures.

What are FMC's views on foreign investment in exchanges?

Exchanges are front-end regulators and, hence, they cannot be given complete freedom like corporates. The Sebi has issued guidelines for stock exchanges in this regard, and we are studying them carefully. In consultation with the consumer affair ministry, we will form our own policy on individual cap, cap for corporates etc.

The control may be different or exactly the same as Sebi guidelines "� it is being looked into.

Many foreign brokerages want to set up shops in India to participate in commodity futures.

We have written to the ministry saying whatever rules applicable to foreign brokers in the securities market should be made applicable to their entry into commodity futures as well. If there is an automatic route, it should be applied to their activity in commodity markets too.

Recently, the quality issue in chilli futures on NCDEX was in focus affecting the sentiments in the market. What is FMC's action?

We were aware of complaints. There were wide differences in spot and futures prices of chilli on the exchange. Complaints do also arise from differences in perception of the quality of chilli lying in the accredited warehouses of NCDEX at Guntur.

We had several rounds of discussions with exchange officials, who assured there would be comprehensive checks of stocks in their warehouses. We have issued two directives "� the buyer can get the entire stock verified and can even choose the assayer.

We have also asked the exchanges not to launch any new contract without FMC's permission.

With regard to halting trade on NCDEX, what is the status of the auditor report?

On October 28, trading on the exchange came to a halt for more than half a day, allegedly owing to a technical glitch. We asked the exchange to give the report and also preserve the record of that day. We also sent a team to Noida to inquire the exchange's service provider.

We also appointed an outside auditor to do an independent investigation "� whether there was any malafide intention in that incident as alleged in complaints. The auditor report is expected soon.