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FMC-SEBI merger to bring convergence; widen size and scope of markets

In an industry-first, two regulators - Forward Markets Commission (FMC) and capital markets watchdog-the Securities and Exchange Board of India (SEBI)-were on 28th September merged to create a unified regulatory body. The formal merger ceremony took place in Mumbai.
The move aims to streamline regulation and curb wild speculations in commodities market, while facilitating further market growth.

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.

Now that the merger has been done with, below is the drawdown of the journey of the commodities regulatory body and what led to the eventual covergence with the capital markets regulator Sebi.

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.

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.

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.

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. Cautioning small investors, Sebi chairman UK Sinha had 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."

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.
Published date : 29 Sep 2015 02:38PM

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