Trading costs to go up after FMC-Sebi merger

Brokers will have to pay registration fee, which will be passed on to clients

The merger of commodity market regulator Forward Markets Commission and the Securities and Exchange Board of India (Sebi) is likely to raise trading costs for commodity market investors.

This is because brokers will have to pay registration fees, which will be passed on to clients.

According to regulatory agencies, at current volumes, the registration fees will be Rs 65-70 crore.

Jayant Manglik, president, Religare Securities, said, “The commodity transaction tax has been working against the industry and hence, we don’t expect excessive charges being imposed on brokers post the merger of FMC with Sebi. Registration fees would have come even if FCRA has been amended to empower FMC.”

FOR A SMOOTH MERGER

• FMC is synchronising commodities and derivatives with practices prevalent in the securities market
• FMC’s norms on client code modification are in line with Sebi's algo penalty structure, as are norms on shareholding/ownership in exchanges and corporate governance
• Investors’ protection fund and settlement guarantee fund norms have similarities
• FMC’s KYC norms for commodity clients are in sync with Sebi’s
• Electronic contract notes, margin reporting by brokers and minimum capital norms are also on similar lines

There are two types of brokers in the commodity markets. Some trade both in the capital markets as well as commodity exchanges. These brokers can merge their businesses to avoid registration fees. Brokers, who only operate in the commodity markets will have to pay charges to get registered.

The merger was proposed in the Budget and related legal provisions were introduced in the Finance Bill, which is expected to be approved by mid-May.

FMC Chairman Ramesh Abhishek says, “We have been taking several measures to align with the practices in the securities market for the last two-three years, which will help in a smooth transition.”

The merger impact will also be felt on exchanges and their shareholders. While FMC appoints its nominees on the boards of commodity exchanges, Sebi doesn’t. Hence, commexes might be spared from having nominees of the regulator. Also, FMC allows exchanges to modify contracts with some conditions but Sebi doesn’t. Sebi, however, is likely to retain FMC’s two-year time period to shareholders to pare their holdings to permissible levels.

It will also have to learn to deal with physical deliveries, especially in case of agri-commodities and regulate all intermediaries such as assayers and warehouses.

However, the biggest benefit for commodity trading post-merger will be Sebi’s real-time integrated surveillance system.

“New products like options and index trading and new participants like banks and mutual funds will provide depth and width to the market which will grow manifold post merger,” said Manglik.