Merger of FMC and SEBI Image

The government of India has announced the merging of two regulatory bodies. On 28th September 2015, India for the first time saw the merging of two major regulators. Forward Markets Commission (FMC) has merged with Securities and Exchange Board of India (SEBI), a younger and a bigger capital market watchdog to form a unified regulatory body. The SEBI was formed in 1988 as a non-statutory body for regulating, controlling and managing the securities markets. It became a complete independent body with full independent powers in 1992. On the other hand, formed in 1953, FMC is quite old, almost 60 years, and has been regulating and managing the commodities markets since then. This is the first major case of merging of two regulators, though the formation of new regulatory authorities, including forming new bodies from the existing ones is very common worldwide.

Cause of Merging

The commodities market has been running with many inherent problems like as lack of power, wild market fluctuations and untamed irregularities in this market segment. It has also been infamous to be prone to various speculative activities as compared to a well-organised and well-regulated stock market. In commodities market, illegal activities like “dabba trading” have also been very common. There was also the well-known National Spot Exchange Limited (NSEL) scam in the recent past, which led to interventions of the government and this finally led to the government of India announcing the merging of FMC with SEBI.

The idea of merging both the big groups was first sowed almost 12 years back within the erstwhile Congress government as a result of the Asian currency crisis of 1997. But it never became a reality. On 28th February 2015, Finance Minister Arun Jaitley in his budget speech mentioned the proposal of merging FMC with the SEBI to strengthen regulation of the commodity markets. With the Rs 5,600-crore NSEL scam going public in 2013, the consumer affairs ministry finally handed over the sector regulator FMC to the finance ministry in the first week of September 2013. This finally led to the merging of FMC into SEBI.

The Process

While necessary regulations have been drafted and prepared to bring into effect the merger, a separate commodity cell and new departments (Integrated Surveillance Department and Market Intermediaries Regulation and Supervision Department) have been created for regulation of commodities derivatives market. SEBI and the government have notified the concerned authorities about all the present regulations and amendments to various existing regulations. An internal committee to evaluate and suggest regulatory changes was also formed to prepare a roadmap for the merging. The Agriculture Ministry has also been requested to provide data sources for the prices and improve the technique for determination of final settlement price. The structure and manpower strength of varied departments regulating the commodity markets has also been finalised. It has been decided that the manpower requirement will be met with the officers from FMC and by hiring new employees. An assessment of the requirement of the exact manpower will made after 6-8 months of merger. At present, there are 12 recognised commodity exchanges, out of which six are non-functional. The six operational exchanges include three national and three regional bourses. In the meantime, FMC has already issued notice to the non-functional exchanges for refund of client money, refund of member deposits and solving client disputes.

How will it help the investors?

Small investors, in order to gain quick returns though speculation, end up investing in the commodities market. But according to the SEBI chairman, this is very risky for non-experts. It requires a lot of technical expertise and the commodities market is suitable for the experts only. With the merging, the capital market watchdog like SEBI will ensure proper regulation of the commodities market, so that all investors’ investments are in safe hands and it would also provide necessary protection to keep the manipulators and the scamsters away for this segment. With the merging, all regulations of FMC would be streamlined and wild speculations would be reduced, while facilitating further growth in the commodities market. With SEBI’s more than 15 years of experience of managing and regulating the derivatives trading, the SEBI chairman is fully confident of regulating the commodities market in a proper and efficient manner. According to Finance Minister Arun Jaitley, this merger would help in improving the market regulations in India, which in turn will help in improving and promoting the business environment.

 

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