The Finance Ministry hopes to bring a bill for merging Forward Market Commission (FMC) with the Securities & Exchange Board of India (SEBI) during the winter session of Parliament.
“There are two options. Either to give more power to FMC through enactment of long pending Forward Contract Regulation Act (FCRA) Amendment Bill or to scrap FCRA and merge FMC with SEBI,” a senior Finance Ministry official told Business Line.
The second option (scrap FCRA) has higher probability and a bill could be brought during winter session, the official said adding that this will require amendment in SEBI Act.
FMC regulates forward trading of commodities while SEBI is capital market regulator.
Forward trading in commodities market is facing tough time as volume has dipped to five year low. Imposition of Commodities Transaction Tax (CTT) besides factors such as NSEL incidence and shifting of investors from commodities to equity are key reasons for this fall.
According to FMC latest figure, trading volume during first fortnight of September stood at ₹ 2.49 lakh crore which is nearly 25 per cent less than corresponding period of the previous fiscal. Currently, there are 6 national and 16 regional exchanges.
The merger has some logic as forward trading in commodities is also one of the capital market activities and a kind of financial transactions, the official said. Besides, the Financial Sector Legislative Reforms Commission (FSLRC) has recommended bringing all the financial transactions under one regulator (barring banking which will continue to be regulated by RBI).
“You may call it (SEBI-FMC) merger as first legislative action for FSLRC recommendations,” he added.
He also said that since both SEBI and FMC is under one Ministry, it would be easier to merge. After ₹ 5,600 crore NSEL (National Spot Exchange Limited) payment crisis, FMC was brought under the administrative control of the Finance Ministry from the Consumer Affairs Ministry. With this, all the financial sector regulators, SEBI, RBI, IRDA and PFRDA besides FMC, are now under one roof.
Indication about not bringing FCRA Amendment Bill was evident, when the Finance Ministry issued draft of ‘Forward Contracts (Regulation) (Intermediaries) Rules, 2014’ in August. These rules propose that no person will act as an intermediary in the commodity future market without obtaining a certificate of registration from the FMC. Currently, commodity brokers are governed by laws of the commodity exchanges of which they are members.
The draft also said that FMC would also have the right to inspect books and accounts of an intermediary and take disciplinary actions. It will also have power to cancel, suspend and debar the registration of an errant intermediary. All these provisions were part of the Forward Contracts (Regulation) Amendment Bill, 2010, but it lapsed with the end of 15th Lok Sabha.