FMC Comes Under Sebi's Umbrella in Merger of Regulators

Mumbai: In the first ever merger of two regulators, the Forward Markets Commission (FMC), which is an over 60-year-old commodities regulatory body, on Monday merged with capital markets watchdog Securities and Exchange Board of India (Sebi) with Finance Minister Arun Jaitley ringing the customary stock market bell to formalise the amalgamation.

Sebi Chairman U K Sinha said that the commodities market entities would get a timeframe 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 timeframe so that they can adjust with the new regulations," Mr Sinha said.

The Sebi chief also said that the entire process has "all been very well thought out" and the regulator has also brought out a handbook for the benefit of all entities by making them aware about various rules and regulations.

Sebi whole-time member Rajeev Kumar Agarwal would oversee the commodities market regulation in the merged entity under the overall guidance of the Sebi Chairman.

At the event, Department of Economic Affairs Secretary Shaktikanta Das said, "Unleashing the process of reforms is a continuous process. We don't wait for the Budget."

Sebi was set up in 1988 as a non-statutory body for regulating the securities markets. It became an autonomous body in 1992 with fully independent powers.

FMC, on the other hand, has been regulating commodities markets since 1953, but lack of powers has led to wild fluctuations and alleged irregularities remaining untamed in this market segment.

The commodities market has been known to be more prone to speculative activities compared to the better-regulated stock market, while illegal activities like 'dabba trading' have also been more frequent in this segment.

Besides, the high-profile NSEL (National Spot Exchange Ltd) scam has rocked this market

in the recent past and the subsequent regulatory and government interventions in this case eventually led to the government announcing FMC's merger with Sebi.

The announcement for the merger was made by the Finance Minister in his Budget speech earlier this year and he rung the customary bell on Monday to formalise the merger.

This is the first major case of two regulators being merged, as against the relatively more frequent practice worldwide of creating new regulatory authorities, including by carving out new bodies from the existing entities.

At present, there are three national and six regional bourses for commodity futures in the country.

Together, all the exchanges clocked a turnover of nearly Rs 60 lakh crore in 2014-15, from over Rs 101 lakh crore in the previous fiscal year.

Sebi Chairman U K Sinha said the first priority post-FMC merger is to develop trust in the commodities market.

"After this, we will focus on market development which may include participation by banks, foreign portfolio investors. But that will be taken up over a period of time," he said.

Terming it a "momentous day in regulatory architecture", Mr Sinha said it has been 12 years since this merger was first announced.

"Passing a legislation is a very very complex process. Except for the US and Japan, all (countries) have a unified regulator as far as commodity and securities markets are concerned," he added.

"We will be very cautious so as to avoid making mistakes in commodities trading, focussing on how to improve movement of prices, strengthen human resources," Mr Sinha said.

He added that Sebi would further improve and strengthen its human resources and technology, but first it would like to take control of the situation.

"Sebi will be very careful and conscious with these regulations. We will take all measures to develop the market," Mr Sinha added.