Pawar to pitch for separate commodity futures watchdog

Agriculture, Food and Consumer Affairs Minister Sharad Pawar is expected to meet Finance Minister P Chidambaram to iron out differences on the issue of a regulator for the commodity futures market.

The consumer affairs department is making a case for a separate regulator for the commodities market, while the finance ministry is keen on vesting the powers of the futures market with the Securities and Exchange Board of India.

In the Budget, Chidambaram had announced the government's intention to integrate the commodities and the securities futures markets.

Consumer affairs department officials said they were kept in the dark about the Budget announcement since they had all along maintained that a separate regulator for the commodities market was required.

They said a recent report by USAID had also suggested that India should have separate regulators for the commodities and the securities markets. The report was in favour of a common regulator only for smaller countries, said officials, adding that the model may not be effective even in smaller countries as the experience in Turkey suggested.

The officials also said the Wajahat Habibullah committee had only touched upon the integration of the markets and did not talk of a common regulator.

Pawar is expected to take up these recommendations apart from those suggested by an inter-ministerial taskforce on the convergence of securities and commodity derivatives market, headed by Additional Secretary DN Padhi, when he meets Chidambaram. The taskforce had representatives from the finance ministry also.

Globally, there are no clear models on who should regulate what. For example, in the US, both commodities and equity futures are regulated by the Commodity Futures Trading Commission (CFTC) while the Securities Exchange Commission (SEC), regulates only the equity spot market. On the other hand, the UK has a common regulator for both the markets. The SEC and CFTC work closely with each other. They even issue rules jointly.

The concerns of the consumer affairs department are echoed in the report of the taskforce. It states, "There are fears that in the large securities exchanges, there would be a certain lack of focus upon agricultural commodities and the focus will be on organising derivative trading only in commodities with close semblance to the financial market, for instance 'bullion'."

The department is also making a case for greater participation of farmers in the commodities market and is of the opinion that Sebi, with its limited reach, may be unable to go beyond the metros.

According to finance ministry officials, the rationale for merging the forwards market commission, under the consumer affairs department, is that Sebi, which is an independent watchdog, already regulates equity futures.

Further, many brokers trading in commodities are also into equities through affiliate firms. Finance ministry officials said as there was an overlap in the market players, it made sense to have a common regulator.

Sebi's ongoing projects like the mapin norms, which seeks to make a database of all market participants in the equity trade, can be easily extended to commodities futures players, sources add.

Also mutual funds, which are regulated by Sebi, have been pitching for permission to trade in commodities derivatives. SBI Mutual Fund recently submitted an offer document to Sebi for approval, prior to launching its Magnum Commodity Fund. A main objective of this fund is to invest in commodity-linked derivative instruments.

The commodities futures market is generally three to four times bigger than the equity futures market. In India, while equity futures began in 2000, commodities futures started in late 2002.

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Pawar's logic

• A USAID report suggests India should have separate regulators. It says common regulator works only in smaller countries
• A taskforce report says in the large securities exchanges, there will be a certain lack of focus upon agricultural commodities
• The ministry sees a greater participation of farmers in the commodities market. It says Sebi, with its limited reach, may be unable to go beyond the metros