The Forward Markets Commission (FMC) on Monday was formally merged with the Securities and Exchange Board of India (Sebi) to regulate the commodities market, with finance minister Arun Jaitley saying that the move would help bring about convergence besides widening the size and scope of markets. “The merger will increase economies of scope and economies of scale for the government, exchanges, financial firms and stakeholders,” said Jaitley.
Besides Jaitley, the function was attended by Sebi chairman UK Sinha, Department of Economic Affairs secretary Shaktikanta Das, former FMC chairman Ramesh Abhishek and other top officials of banks and regulatory bodies. The merger of Sebi and FMC was first suggested in 2003 by then consumer affairs secretary Wajahat Habibullah who was also the chairman of an inter-ministerial task force on convergence of the securities and commodity derivatives market. In 2007, the committee headed by Percy Mistry, a former World Banker, submitted a report suggesting to bring regulation of all securities trading across stocks, bonds, forex and commodities under Sebi. This view was also endorsed by a committee on financial sector reforms headed by Raghuram Rajan in 2009 and the Financial Sector Legislative Reforms Commission (FSLRC) in 2013.
The final trigger for merging FMC with Sebi was the Rs 5,600 crore payment fraud at the National Spot Exchange Ltd (NSEL) which broke out in July 2013. According to Sinha, Sebi’s immediate priority post the merger is to develop trust in the commodities market. “There will be series of measures for development of the market. There is no reason why we shouldn’t have more and more products for example, options or index futures … In fact going forward those participants who are today not allowed should be allowed to participate for example banks and foreign portfolio investors,” he said.
Sinha said that the commodities market entities would get a time of up to one year to adjust to the new regulations as they would have to follow the same norms that are applicable to their peers in the equity segment.
“In order to ensure that nothing is disrupted, there is no discontinuity … We are giving some time-frame so that they can adjust with the new regulations,” he said.
Das said that the government is focusing on ease of doing business. According to him, the government is now working on a scheme to simplify and fast track opening of branch offices by foreign companies that want to business in India. Meanwhile, Ramesh Abhishek, the former Chairman of FMC who initiated the investigations into the NSEL fraud and also worked on the convergence between the regulatory agencies said that, “FMC did not have the powers of a model regulator, the power to enact regulations, power of investigation, imposing monetary penalties and many such powers which are required today. With this merger now, this mismatch between a largely growing commodities market and the regulatory structure has been addressed adequately.”