Regulatory shakeup could revive commodities markets

By Rajendra Jadhav

MUMBAI (Reuters) - India on Saturday proposed to merge its commodity market regulator with the capital market watchdog, aiming to strengthen regulation in a move which could help open the commodity futures market to institutional investors.

Responding to the measure, shares of Multi Commodity Exchange of India Ltd, India's biggest commodity exchange and its only listed commodity trading venue, jumped as much as 15 percent.

Combining the Forward Markets Commission (FMC) with the Securities and Exchange Board of India (SEBI) will also reduce speculation in commodity forward markets, Finance Minister Arun Jaitley said as he presented the budget for the next fiscal year starting April 1.

The FMC, which regulates the country's nascent commodity market, has limited powers and resources compared with the SEBI. India allowed futures trading in commodities in 2003 but has so far kept out banks, mutual funds and other institutions.

"This is the biggest positive step to have happened in the commodity market since its inception," said Samir Shah, managing director of the National Commodity and Derivatives Exchange.

"All the demand that commodity markets have had, which is to allow participation of banks, FIIs, mutual funds, financial institutions, that entire thing in one sweeping reform now gets enabled."

Having a unified regulator will ensure better surveillance and regulation to check fraud, said Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities.

Confidence in India's commodity markets suffered a blow in July 2013 when National Spot Exchange Ltd (NSEL) abruptly suspended trading in most of its contracts. Investigations by the FMC subsequently showed what it said was a 55 billion rupee ($892 million) fraud.

The combined transactions of all Indian commodity exchanges since the start of the current financial year on April 1, 2014, are down over 41 percent from a year ago, FMC data shows.

"People who had exited the commodity markets after the NSEL scam will come back to the market in anticipation of better legislation and better regulator," Shah said.

Goldman Sachs Investments (Mauritius), Blackstone GPV Capital, Matthews Asia Growth Fund and InterContinental Exchange (ICE) are among foreign investors that hold stakes in Indian commodity exchanges.

($1 = 61.6489 rupees)

(Editing by David Holmes)