The formal merger of the Forward Markets Commission (FMC) with Sebi on Monday is significant. India’s regulatory architecture has so far been fragmented, with multiple oversight agencies sprouting after each reform announcement. Such fragmentation has given rise to turf battles between sectoral regulators. Policymakers have for long recognised the case for convergence between the securities and commodity derivatives markets. As finance minister, P. Chidambaram had proposed this in the 2004-05 budget, only for the move to be scuttled. But the Rs 5,600 crore National Spot Exchange scam, coupled with the FSLRC’s recommendation, provided the government the opportunity to finally go ahead with the merger.
Most countries, barring the US and Japan, have a unified securities and commodity market regulator. There are good reasons to justify this design in India. For long, the FMC was forced to function like a subordinate office of the ministry of consumer affairs, without statutory powers. It was handicapped in terms of the regulatory and manpower resources required to police this growing segment. A merged regulator would not only enhance the integrity of financial markets, but also boost liquidity and improve the price- discovery process. A unified regulator may also have a salutary impact on the spot commodities market, while strengthening it with the transparent systems in place in the securities market. It helps that Sebi has evolved as a credible regulator in the last two decades.
