FMC MERGER WITH SEBI

FORWARD MARKET COMMISSION (FMC) MERGER WITH SEBI

 This is the first major case of two regulatory body Forward Markets Commission (FMC) merged with the capital markets watchdog SEBI, as against the relatively more frequent practice worldwide of creating new regulatory authorities.

 The commodity futures market in India will now be supervised by SEBI, making for an integrated regulation of both the securities and commodities markets in India.

BACKGROUND

 India’s regulatory architecture has so far been fragmented, with multiple oversight agencies. Such fragmentation has given rise to turf battles between sectoral regulators. Most countries, barring the US and Japan, have a unified securities and commodity market regulator.

 The FMC 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.

 For long, the FMC was forced to function like a subordinate office of the ministry of consumer affairs, without statutory powers. It was handicapped in terms of the regulatory and manpower resources required to police this growing segment.

 The move gathered pace after the commodity market was rocked by the outbreak of a multi-crore scam at National Spot Exchange (NSEL) unearthed two years back which involved a payment crisis of more than Rs. 5000 crore. This was considered a regulatory failure by the FMC.

ADVANTAGES

 A merged regulator would enhance the integrity of financial markets,

 It will also boost liquidity and improve the price- discovery process.

 A unified regulator may also have a salutary impact on the spot commodities market, while strengthening it with the transparent systems in place in the securities market.

 It helps that Sebi has evolved as a credible regulator in the last two decades.

CHALLENGES

There is jurisdictional powers of the state government over agricultural marketing and the political sensitivities involved with farm commodities. Price volatility in these cannot be compared to that in stocks or bonds.

WAY FORWARD 

 The growth of the commodity derivatives market has also been hobbled because of the lack of institutional players to impart greater liquidity in trading. But now, with an empowered regulator for the commodities market, there is a strong case for allowing these organised funds.

 Next, the government should look at merging the insurance and pension regulators, which can then be the precursor to a unified regulator for the financial market as a whole