Convergence of regulators on the back burner for now

FCRA Bill in existing form may be placed in the Budget session

The new government has decided to keep the idea of convergence of  financial and commodities market regulator  as recommended by the FSLRC on the back burner for the time being.  

Instead, the finance ministry currently in charge of  commodities market proposes to revive the Forward Contract Regulations Act ( FCRA) Bill in the coming budget session with the objective to strengthen the commodities market regulator.

According to officials close to the development, all efforts are on to place the FCRA Bill  in the budget session in the existing form. The only change will be its placement. Earlier it was placed by Food Ministry  and now it will be  part of Finance ministry Bill. Currently the bill has lapsed and it will have to be revived and placed again, said official sources.

They added that other than  this formality, nothing much will be changed as it is a comprehensive and well researched  bill.   All the recommendations by the standing  parliamentary committee will be retained as the basic idea is to strengthen the commodity market regulator.

As for the Financial Sector Legislative Reforms Commission (FSLRC) report, the ministry will be currently pursuing the non legislative  recommendations  as legislative reforms would require wider consensus and  time.

They added that unless the market regulator is armed with legislative powers, it is difficult to monitor everything at the ministerial level . There should be greater autonomy with the market regulator which is hands on  with the daily activities of the  concerned market, said sources.  

During the tenure of the last government, in a last minute effort, the finance ministry had put up a notice in Lok Sabha for tabling the Forward Contracts Regulation Act 1952 in the current vote on account session. But the bill could not be placed and it lapsed.

Amendments to the Forward Contracts (Regulation) Act, 1952 (FCRA) will seek to give more powers to the commodities market regulator, Forward Market Commission (FMC), and open the door for introduction of new products like options and indices trading in the commodities futures market.

The standing parliamentary committee on food and consumer affairs in its report on the FCRA Bill recommended for giving full autonomy to the Forward Markets Commission (FMC), in line with that enjoyed by the Securities and Exchange Board of India for the capital market and had consented to forward trading in essential commodities.

Further, the report had suggested greater autonomy for FMC to regulate spot online commodity exchanges — Financial Technologies-promoted National Spot Exchange Ltd(NSEL) and the National Commodity & Derivatives Exchange-promoted NSpot.

The standing committee had also recommended for allowing financial institutions and banks, mutual funds and insurance companies to participate in forward markets so as to ensure better price discovery and lower volatility. The amendments seek to change some of the definitions mentioned in the earlier law, which would facilitate futures trading in index and also options trading in individual commodities and index. At present, in the equity markets trading is allowed in stocks, futures and index.

Incidentally, the amendments to FCRA were first cleared through an official ordinance; however it lapsed as the 14th Lok Sabha could not clear the Bill due to opposition from Left parties.

Thereafter, the Cabinet once again cleared the amendments to the Act in September 2010 and introduced the Forward Contracts (Regulation) Amendment Bill, 2010 in Parliament.

Following this, the draft Bill was referred to a standing committee of Parliament for vetting.