FMC to regulate investments by banks, mutuals

The Forward Markets Commission (FMC) would regulate the investments by banks and mutual funds in commodity futures, once the green signal is given for investments through these channels.

Currently, the rules for these is being vetted by the law ministry, according to consumer affairs secretary, Labanyendu Mansingh said on Wednesday.

"There will be no overlapping the jurisdiction of FMC and RBI, when it comes to investment of banks and mutual funds in commodity futures," Mansingh clarified.

To ensure liquidity in commodity futures, participation of institutions like banks is a must and it would be allowed shortly and governed by FMC regulations, he added.

Speaking to the Business Standard, an official from a Mumbai-based commodity futures exchange said that this is a very welcome clarification, especially with regards to investment in gold through the exchange-traded funds.

This investment channel was announced in the budget of 2005-2006, and has not yet taken off due to the ambiguity in the regulatory rules.

A source from the FMC, however, revealed that there have not been any official notifications with regard to the clarification as yet but the regulator would control all investments and investment routes to the commodity futures market.

Mansingh explained, "Just as dealings of banks and mutual funds in currencies is administered by RBI, while their investments in stocks is monitored by SEBI, similarly, when it comes to their participation in commodity futures, the regulatory body will be FMC."

Earlier this month, the government tabled a bill in the Parliament, proposing to amend the Banking Regulation Act. The bill intends to include commodity futures in the definition of approved securities that banks and mutual funds can invest in.

The Forward Contracts (Regulation) Act is also being carefully scrutinised for amendment to facilitate the foray of banks and mutual funds in this sector.