Ficci, Assocham push for empowering FMC

Bill to amend FCRA with a Parliamentary panel for scrutiny.

The Federation of Indian Chambers of Commerce and Industry (Ficci) and Associated Chambers of Commerce and Industry of India (Assocham) have urged support for the pending Bill to empower the Forward Markets Commission (FMC).

The Bill, to amend the Forward Contracts (Regulation) Act, is with a parliamentary panel for scrutiny. it aims to make the FMC an independently-functioning regulator for the commodities derivatives market, just as the Securities and Exchange Board of India (Sebi) is for the capital market.

S Bhaskar Reddy, head of the agriculture section at Ficci, said, “The commodity exchanges which were permitted to operate only since 2003 have grown phenomenally at a compounded annual growth rate of 95 per cent. The national exchanges have introduced an array of products that insulate manufacturers of various products from price volatility.”
 

INADEQUATE PROVISIONS
Major shortcomings highlighted by the FMC in the existing FCRA

1. Prohibition of ‘options’ in goods
2. Inadequate / outdated definitions
3. Lack of financial and administrative autonomy of FMC to meet the growing challenges in the Commodity Derivatives market.
4. Limited functions assigned to FMC. This undermines the authority of the Regulator.
5. Absence of powers to issue directives to the intermediaries and other persons related to commodity derivative market. 
6. Absence of provisions for compulsory corporatisation and demutualisation of the Commodity Exchanges.
7. Miniscule penalty provisions for contravention of the 
   FC (R) Act.
8. No powers to investigate the affairs of the intermediaries or any person associated with the Commodity Derivatives market.
9. No power conferred on the FMC by the FC(R) Act, 1952 to make regulations.

 

The fast-changing global environment necessitates change in the FCRA Act, which dates back to 1952. There is an urgent need for structural changes to ensure a wide range of stakeholders, including farmers, takes the benefit of modern risk-mitigation tools such as Options, he added.

In the backdrop of the significant increase in commodity volumes during recent years, to Rs 105 trillion over January to December 2010, Assocham’s secretary general, D S Rawat, said, “The rise in price uncertainty in both domestic and global commodities has increased the need for a modern commodity derivatives market, which would fulfill the price risk management needs of market participants.”

The need is for a regulator with functional and financial autonomy. The amendments would empower FMC with penal powers, facilitating timely and better enforcement of regulations, Rawat added.

“The amendments will strengthen India’s position on the global commodity map and put it at par with global exchanges. This would enable domestic exchanges in attracting participation from Indian corporates that use global exchanges for hedging,” he said.

Earlier, the standing committee currently studying the Bill had sought a number of clarifications, which were readily given by the FMC. Said the Commission: “Given the experience of hardship faced by the FMC to fill (its) vacancies in spite of repeated efforts, the problem can be solved only after autonomy is conferred on the FMC through the Amendment Bill, so that an appropriate cadre and incentive structure can be put in place to attract talent and retain them permanently.”