Sebi, FMC merger on the backburner

The finance ministry’s proposal to merge commodity futures regulator Forward Markets Commission (FMC) with the Securities & Exchange Board of India (Sebi) has been put on the backburner. It met with opposition from the consumer affairs department.

FMC is a division of the consumer affairs department.

North Block proposed that at the time of the entity’s conversion into an independent regulatory body, its functions be merged with Sebi, the regulator for the capital markets.

Sources close to the development said the process has been suspended for the time being as Agriculture, Food & Consumer Affairs Minister Sharad Pawar, a political heavyweight, is opposed to any intrusion into his turf.

The issue of who will regulate the commodities futures business has been contentious, with Pawar having his way around five years ago when the issue had come up for discussion.

It was then decided that a review be undertaken after three years.

The sources said that the finance ministry prepared a note following consultations with the consumer affairs department and FMC, but there has been no further progress. Cabinet Secretary K M Chandrasekhar, too, has held discussions with the finance ministry and the consumer affairs department. The finance ministry argued that the equity futures market is regulated by Sebi, which should also be assigned the task of overseeing the functioning of the commodity futures market, including the exchanges.

Last year, the Planning Commission raised the issue and FMC retorted with a five-page note, arguing against the move. It said the characteristics of the capital and commodities markets are quite different and, typically, equity being the “glamour boy” tends to get precedence over other segments.

FMC said that given the large population dependent on agriculture, which is an important segment of futures trading, plus the nascent nature of commodity futures trading, it requires hand-holding for at least a decade. Further, it said that commodities, barring gold, are not an asset class and, therefore, need separate treatment.

Globally there are various regulatory practices. Singapore has a common regulator for equities, commodities and currencies. In contrast, in the US, the Securities and Exchange Commission regulates capital markets and the Commodity Futures Trading Commission monitors the commodity futures as well as stock futures.

In India, the currency market is regulated by the Reserve Bank of India, while currency futures are jointly regulated by Sebi and the central bank.