FMC merges with Sebi: unprecedented merger of
regulators
Marriage
of Regulators: FMC to merged with Sebi
The
amalgamation of Forward Markets Commission (FMC), the erstwhile commodities
regulatory body, with capital markets watchdog Securities and Exchange Board of
India (Sebi) came into effect today, marking the first major case of two
regulators being merged.
Although,
the merger of these two independent regulatory bodies was under discussion for
long time, the move gathered pace, especially, after the commodity market was
rocked by the outbreak of a multi-crore scam at National Spot Exchange (NSEL)
unearthed two years back.
What led to the eventual convergence with the capital markets regulator Sebi.
1)
History of the two regulatory bodies:
The
Forward Markets Commission regulated commodities market since 1953, while the
Securities and Exchange Board of India was set up in 1988 as a non-statutory
body for regulating the securities markets and became an autonomous body in
1992 with full independent powers. Currently, India boasts of three national
and six regional bourses for commodity futures in the country. The persisting
global economic slowdown coupled with slackening growth in China fuelled a
sharp fall in commodity prices over the past year or so. So much so that the
consolidated turnover of all the exchanges put together fell to nearly Rs 60
lakh crore in 2014-15 from over Rs 101 lakh crore in the preceding financial
year.
2)
Issues stifling commodities markets:
FMC oversaw
the commodities market for over 60 years, but it lacked powers which led
to wild fluctuations and alleged irregularities remaining untamed in this
market segment. Also, the commodities market faced challenges with respect to
speculative activities and illegal activities like 'dabba trading' flourishing
in this segment. Cautioning small investors, Sebi chairman UK Sinha had
once said, "If you put your hard-earned money into this market, it may not
be ultimately good for you. The commodities market is for those who are experts
in this space. For non-experts, it is a risky area."
3)
Talks of merger:
The
merger talks between the two regulatory bodies was first mooted in 2003, and
continued in next few years before the Rajan committee in 2009 reiterated
consolidation of all financial sector regulators under one umbrella. In the
events before the outbreak of NSEL crisis came to light, Justice BN
Srikrishna-led FSLRC recommended unified
regulation. But the fallout of NSEL prompted finance ministry to bring FMC
under its fold in that same year. Finally, in his budget speech this year in
February, finance minister Arun Jaitley announced the merger of FMC with Sebi.
4)
What merger aims to achieve:
The
merger is aimed at streamlining the regulations and curb wild speculations in
the commodities market, while facilitating further growth there. “The
merger will increase economies of scope and economies of scale for the
government, exchanges, financial firms and stakeholders,” finance minister
Arun Jaitley has been quoted as saying in reports. The minister also
promised a more steps measures to further develop the market. He said there is
no reason why the commodities market should not have options or index futures.
He also said in future banks and foreign portfolio investors will also be
allowed to participate in the markets.
5)
Measures by Sebi:
Sebi
has also created a separate Commodity Cell and has set up new departments for
regulation of commodities derivatives market. Sebi has formed a Commodity Cell
by posting its senior officials, while two internal departmental committees
(one each in Integrated Surveillance Department and Market Intermediaries
Regulation and Supervision Department) have been set up. The market regulator
has also sought help from the Agriculture Ministry with regard to the data
sources for the prices and to improve the methodology for determination of
final settlement price. It will also give up to one year time for those in
commodities market to adjust to new regulations.
