Industry

A move to boost derivatives regulation

Ramesh Abhishek, Chairman, FMC; UK Sinha, Chairman, SEBI, Shakti Kanta Das, Secretary, Department of Economic Affairs look on as the Union Finance Minister, Arun Jaitley strikes a gong during an event announcing the FMC-SEBI merger in Mumbai.  

In an effort to bring in more transparency to markets, especially commodity derivatives, the Government on Monday formally announced the merger of Forward Markets Commission (FMC), the erstwhile regulator of commodity futures, with capital market regulator, Securities and Exchange Board of India (SEBI).

Formalizing the merger by ringing the customary bell here, Union Finance Minister Arun Jaitley said the amalgamation of FMC and SEBI would bring convergence of regulations in the commodities and equity derivatives markets.

“The merger will increase the economies of scope and scale as there are strong commonalities between all kinds of trading. I am sure that SEBI is prepared to regulate the commodity derivatives market,” he said.

The Finance Minister said that markets thrive where there is confidence and integrity and this requires transparency and good regulations. “Market participants and regulators have to brace themselves to face the challenges thrown by global developments and integration of markets,” he said.

Mr. Jaitley also reminded that the regulator must ensure that manipulative activities are curbed in this market. He further cautioned that since the physical market for commodities was widespread, fragmented and unregulated for certain goods, SEBI needs to have a proper mechanism to capture any aberrations in the physical market that would disrupt the derivatives market.

He said farmers, producers and consumers need to have confidence that the derivatives market is free from manipulations and market abuses.

“It would be a challenge for SEBI because this is an additional responsibility, but SEBI has matured over the last two decades to take on such responsibilities,” the Finance Minister said.

Sinha vows transparent market

Addressing a press conference after the event, SEBI Chairman U. K. Sinha said that the merger had generated a lot of expectations from market players and participants. “We will be coming out with more guidelines on these markets,” said Mr. Sinha. According to him, SEBI would allow some brokers in commodities markets to function in the securities market also.

He said the merger of FMC with SEBI will have impact not only on the regulatory front but also on the economy at large. “It will encourage more competition and better price convergence. Our effort is that it should help to bring simplicity in transaction. Most importantly, it should provide a tool to hedge risks for all major stakeholders,” Mr. Sinha added.

“We ensure physical delivery...and it will take place promptly…with quality and quantity ensured,” he added.

Mr. Sinha said that SEBI has made mistakes in the past but learnt from them. “So far as commodity markets go, we will try to avoid making mistakes and avoid making any missteps. We will try for better convergence of prices from physical side. We will be focussing on improving the way the prices are determined, how the benchmark is fixed and how it is more transparent.”

SEBI Chairman also said that “the measures taken by FMC are with us but our effort will be to move in cautious direction to ensure that we provide some comfort to the market and to all the participants that the way transactions are taking place or are going to take place in the futures market are as robust as they are in the securities market.”

“I would like to mention that our immediate priority will be to take stock of the situation and ensure that there is trust in the market, about the way regulatory environment is going to evolve. Once we are sure that we have achieved this task, there will be series of measures for the development of the market,” he added.

“There is no reason why we cannot have commodity exchanges working as security exchanges or security exchanges working as commodity markets,” said Mr. Sinha. “I am sure that all those participants who are today not allowed should be allowed going forward like banks and foreign portfolio investors,” he said, adding this would be done over time. “Immediate priority will be to ensure that the conduct of the market is in the best possible way in the interest of all the stakeholders.”“Our effort will be that we improve and further strengthen our human resources and technology so that we are able to live up to the task we have be given. I am sure that our step by step method will be appreciated by the market and they will show some patience,” he added. “We do acknowledge that while FMC has laws about crisis and risk management, there are areas where more needs to be done. We will be focussing on that.”

At present, there are three national and six regional bourses for commodity futures in the country. Together, all the exchanges clocked a turnover of almost Rs.60 lakh crore in 2014-15, from more than Rs.101 lakh crore in the previous fiscal.

SEBI has created a separate Commodity Cell and has set up new departments for regulation of commodities derivatives market. An internal committee was earlier set up at SEBI to evaluate and suggest regulatory changes for merger and prepare a roadmap for the same.



Merger was precipitated in the aftermath of the more than Rs.5,000 crore payment crisis at National Spot Exchange Ltd. (NSEL)

In the aftermath of the scam at NSEL, the functioning of FMC shifted from Ministry of Consumer Affairs, Food and Public distribution

Before the merger FMC was brought under the Ministry of Finance in the later period of the UPA Government

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Printable version | Apr 20, 2021 1:44:15 AM | https://www.thehindu.com/business/Industry/a-move-to-boost-derivatives-regulation/article7699416.ece

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