Sebi talks FMC merger with bourses

Commodity bourses to have higher net worth of Rs 100 cr, and clearing houses

This article has been modified. Please see clarification at the end

Chairman of the Securities and Exchange Board of India (Sebi) U K Sinha on Wednesday met officials of commodity exchanges to iron out issues over its merger with the Forward Markets Commission (FMC).

According to sources close to the matter, commodity exchanges must comply with all the regulations under the Securities Contract and Stock Exchange Regulations Act, 2012. They will be given a deadline to adhere to the rules.

“Our immediate concern is a smooth transition. Commodity participants will not be required to adhere to a new set of regulations overnight, but will be given time,” said a source.

The meeting was attended by Sinha along with a Sebi panel for monitoring the merger and officials of commodity exchanges.

Commodity exchanges now do not have a separate clearing corporation for contracts, a requirement under the Sebi Act. Sebi will give commodity exchanges up to three years to have separate clearing corporations.

National commodity exchanges will need to acquire a net worth of Rs 100 crore by 2017 and regional stock exchanges within three years of the merger.

The Multi Commodity Exchange (MCX) and NCDEX have net worth higher than required. The NMCE, which has a net worth of Rs 60 crore, will have to increase it. Most regional commodity exchanges are below the threshold prescribed by Sebi.

The Sebi complaint redressal system will be applied to commodity derivatives exchanges. Sebi is also likely to prescribe guidelines on arbitration at commodity derivatives exchanges.

“The market regulator will issue circulars on risk management at national and regional commodity derivatives exchanges on the date of merger,” said a source.

The merger is likely to be effective from September 28 and the event may be attended by Finance Minister Arun Jaitley. Sebi will finalise the regulations in its board meeting on August 24 to pave the way for the merger.

WHAT LIFE AFTER MERGER COULD LOOK LIKE

• Commodity exchanges would need to apply to Securities and Exchange Board of India (Sebi) for launching a trading segment
• Sebi to introduce scores for consumer grievance redressal at the commodity exchanges
• Sebi would define guidelines for arbitration mechanism
• According to sources, commodity exchanges must comply with all regulations under the Securities Contract and Stock Exchange Regulations Act, 2012
• They will be given a deadline to adhere to the rules
• Commodity exchanges now do not have a separate clearing corporation for contracts, a requirement under the Sebi Act. Sebi will give commodity exchanges up to three years to have separate clearing corporations
• Commodity exchanges will not immediately receive investments from domestic or foreign investors as the Reserve Bank of India has advised Sebi to maintain the status quo pending approval from the government

Commodity exchanges will not immediately receive investments from domestic or foreign investors as the Reserve Bank of India has advised Sebi to maintain the status quo pending approval from the government.

The merger, announced in this year’s budget, is being monitored by a finance ministry committee headed by Ajay Tyagi, additional secretary, and a Sebi-constituted panel.

A separate Sebi commodity cell has been created similar to its market regulation department. More units will be created within Sebi’s surveillance, legal and investigation departments for the commodity market. Sebi is asking FMC officials if they wish to join these units.

Sebi will make another assessment of the personnel required for commodities market functions in February or March, but sources said the regulator had put forward a demand for 75 officials.

CLARIFICATION
An earlier version of this article misstated that commodity bourses would have higher net worth of Rs 200 cr which is Rs 100 crore indeed.