The Hindu : Business : SEBI-FMC merger opposed

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Saturday, Nov 12, 2005

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SEBI-FMC merger opposed

Gargi Parsai

Food Ministry for separate regulator for commodity market

NEW DELHI: The Ministry of Food and Consumer Affairs has opposed the merger of the Securities and Exchange Board of India (SEBI) and the Forward Markets Commission (FMC). The issue is caught in difference of opinion between the Department of Consumer Affairs under the Ministry of Food, and the Ministry of Finance.

The Minister for Food and Agriculture, Sharad Pawar, on Thursday gave a hint about the differences to the members of the Parliamentary Consultative Committee attached to his ministry. The members were informed that the Finance Ministry had proposed convergence of the two markets in terms of markets, institutions, players and regulation on the ground that the "considerable knowledge'' and capabilities developed for operation of the financial securities derivatives market could be utilised for commodity trading.

However, as the administrative Department of Consumer Affairs (DCA) opposed the proposal, a Task Force headed by the then Secretary Consumer Affairs, Wajahat Habibullah, was set up to go into the issue. It recommended that the unification be done in phases and that the pace and sequence be left to the "dynamic market forces''.

A Working Group set up to operationalise the recommendations of the Task Force also went with the suggestion to merge SEBI and the FMC with an independent new regulator for both the markets. However, the Consumer Affairs Department held that the Working Group had gone beyond its brief on "merger'' since the Ministry concerned had not accepted the recommendation in the first place.

A subsequent study undertaken by the Financial Markets International (FMI), U.S., commissioned by the Department will support from the United States Agency for International Development (USAID) on "the best approach to develop the commodity futures markets'' made no suggestion on "merger'' of the two regulators.

The study, however, highlighted that the basic objectives of the two markets were different. The economic function of the futures commodity market was price discovery and hedging for price risk, while the primary focus of the financial securities market was capital formation.

After considering the three reports, the Department of Consumer Affairs held that the interests of farmers, Indian agriculture and commodities market in general would be best served by a separate regulator focused on this market.

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