Do we need another regulator?

The Finance Minister8217;s decision to take up autonomy for the Forward Market Commission FMC in the coming Budget session has kicked up ...

The Finance Minister8217;s decision to take up autonomy for the Forward Market Commission FMC in the coming Budget session has kicked up a fresh debate whether there should be a separate regulator for commodities market or securities market regulator Sebi should be given an additional mandate.

With commodity futures considered as financial assets similar to options trading in securities, the regulation needed at the commodity markets are very similar to stock market norms. There are 24 exchanges across the country competing with each other. The settlement process, monitoring of members and counter-party risk are similar for both the regulators. These similarities in trading had once prompted the government to consider the Sebi as a regulator for both securities and commodity markets.

8216;8216;Who regulates the commodity market should not be the issue, whoever does it should ensure smooth functioning of the trade without manipulation. With commodity trading picking up, it is better to have a separate regulator which is working in tandem with Sebi,8217;8217; says Suresh Nair, vice-president of Kotak Commodities Services Ltd.

At the same time, there8217;s another view that dual regulator will not suit India.

Citing the example of cooperative banks, Sunil Mehta, a broker with both MCX and NCDEX, said, 8220;There will be utter confusion if we have a dual regulator system especially when commodity markets are still in their nascent stage. They should give enough time for the market to evolve.8217;8217; As things stand, both RBI and the state governments8217; registrars govern cooperative banks, creating confusion in the sector.

Echoing the popular sentiment among the traders, Sushil Sinha, regional head, Karvy Commodities, said, 8220;Commodity is a very touchy issue in India due to political involvement. Bullish commodity prices can stoke up inflation and upset the entire calculations of the government. It has the power of making or breaking a government. We need a single regulator who can closely monitor the exchanges.8217;8217;

Arguing that there are huge differences in the ground realities of stock and commodity futures, Chetan Mehta, partner of Waghji Lakhmidas 038; Co says 8220;Unlike securities, the supply of underlying commodity varies season to season. There are various factors which affect prices of commodities like demand-supply, crop season, weather etc giving more opportunities for manipulators.8217;8217;

Story continues below this ad

8216;8216;SEBI already regulates the securities market and has enough problems to tackle. So it will be wise to make FMC as a full-fledged regulator with all powers,8217;8217; he adds.

Traders are more worried about facilities like real-time banking. But it8217;s clear that this is one debate that will not become a commodity anytime soon.