Meanwhile,another wrangle of regulators

Just when the SEBI and IRDA have locked horns,another regulator,the Forward Markets Commission FMC,has come ahead to guard its turf....

Just when the SEBI and IRDA have locked horns,another regulator,the Forward Markets Commission FMC,has come ahead to guard its turf. The FMC has once again made it clear that commodity futures cant be traded on the stock exchanges,bringing the ticklish issue of regulating commodity derivatives back in the limelight again. The governments old plan to bring all derivatives trading equity,currency,commodities and interest rates under the Securities and Exchange Board of India SEBI seems to have have hit the wall again with FMC refusing to play the ball.

The National Stock Exchange NSE move to introduce futures and options contracts on gold Benchmark Exchange-Traded Scheme on the exchange with the blessings of the SEBI was shelved in the last minute on Thursday as the FMC strongly opposed the move. The FMC,which regulates the commodity markets,is overseen by the Ministry of Consumer Affairs,Food and Public Distribution which is under Sharad Pawar. It is a statutory body set up in 1953 under the Forward Contracts Regulation Act,1952. Sebi is an autonomous body attached to the Finance Ministry.

FMC chairman BC Khatua says,We have reasons to object to the SEBI move that allowed the NSE to start trading gold exchange-traded fund. The market regulator should be aware of the fact that GETF is a commodity future and it should be traded on commodity exchages only. Why it happened because GETF falls under the SEBI Act and the regulator tried to trade through the NSE. I think the FMC would not allow it as long as it

exists. The FMC,which supervises 22 commodity exchanges,obviously doesnt want to give up control over the commodity markets.

In fact,all the regulators FMC,SEBI and the Reserve Bank of India have been differing on bringing financial products under one umbrella. The proposal of Percy Mistry and Raghuram Rajan panels that all trading of financial products and instruments should be brought under the SEBI will make the market regulator all powerful and it would be more than happy to take up the responsibility. But rejecting the panels proposals,RBI governor Subbarao had recently gone on record saying,We need to seriously debate the advisability of such a unification.

If supervision of commodity derivatives trading is taken away from the FMC,the body will lose teeth and it will be rendered ineffective. In that case,its better to merge the FMC with the SEBI. But the food and consumer affairs ministry of Sharad Pawar has been opposing any move to merge the FMC with the SEBI. The government needs to take a policy view on derivatives. Maybe the government should look at the US model, said an observer of the regulatory issues. In the US,Congress created the Commodity Futures Trading Commission CFTC in 1974 as an independent agency with the mandate to regulate commodity futures and option markets. CFTCs mandate was renewed and expanded several times. In December 2000 Congress passed the Commodity Futures Modernisation Act of 2000,which asked the Securities amp; Exchange Commission the US stock market regulator and the CFTC to develop a joint regulatory regime for single-stock futures. These products began trading in 2002.