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Economy
28 Sep 2015

FMC merges with SEBI

FMC-SEBI merger explained

In a first ever merger of regulators, commodities regulatory body Forward Markets Commission (FMC) merged with Securities and Exchange Board of India (SEBI).

Finance Minister Arun Jaitley, who announced the merger in his budget speech, rang the customary stock market bell to formalise the amalgamation.

This will be a key test, as the proposed merger of insurance and pension regulators will depend on it.

In context

FMC-SEBI merger explained

SEBI

Securities Exchange Board of India

Securities and Exchange Board of India was set up in 1988 as the regulator of the securities markets and became a statutory body in 1992 through the SEBI Act.

SEBI is responsive to the needs of issuer of securities, investors and intermediaries.

It has quasi-legislative, quasi-judicial and quasi-executive functions.

It can draft regulations, conduct investigations, enforce action and pass orders in its capacity.

Forward Markets Commission

FMC

Forward Markets Commission

Established in 1953, Forward Markets Commission had been the chief regulator of commodity futures markets in India.

It allowed futures trading in 23 fibers and manufacturers, 15 spices, 44 edible oils, 6 pulses, 4 energy-products, single vegetable, 20 metal futures and 33 others futures.

Lack of powers led to fluctuations and irregularities in this market. NSEL scam in the recent past is an example.

Number of bourses

At present, there are three national and six regional bourses for commodity futures in India. Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), National Multi-Commodity Exchange of India Ltd (NMCE) are the national level commodity exchanges.

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Scam summary

NSEL Scam

NSEL scam which came to light in 2013 was a premeditated fraud perpetrated by the National Spot Exchange Limited (NSEL) in the commodity market.

Spot exchange is not supposed to offer forward contracts (more than 11 days), but NSEL offered 20-35 day forward contracts.

FMC also found short selling in some of these contracts where sale occurred without an individual owning the underlying commodity.

NSEL Scam

Aug 2013

NSEL Scam

FMC's notice to NSEL asking it to bring down the settlement period, triggered panic among traders.

NSEL first changed its contract duration to comply, and when it found customers leaving in droves, threw up its arms and shut down the exchange.

It deferred the settlements of about Rs.5500 crore and close to 15000 investors became the victims of this scam.

Financial Sector Legislative Reforms Commission's recommendation

Financial Sector Legislative Reforms Commission (FSLRC) headed by Justice Srikrishna, in its recommendations had endorsed a proposal to have a unified regulator for the securities and commodity markets along with insurance and pensions markets.

2 Sep 2015

Government notifies the merger of FMC with SEBI

Government notified the merger of FMC with SEBI with effect from September 28.

In the wake of payment crisis at NSEL, FMC was brought under the Finance Ministry in 2013.

Forward Contracts Regulation Act (FCRA) 1952 would be repealed and commodity derivatives market regulation would shift to SEBI under Securities Contracts Regulation Act (SCRA) 1956, as per the statement given by the Finance Ministry.

28 Sep 2015

FMC merges with SEBI

In a first ever merger of regulators, commodities regulatory body Forward Markets Commission (FMC) merged with Securities and Exchange Board of India (SEBI).

Finance Minister Arun Jaitley, who announced the merger in his budget speech, rang the customary stock market bell to formalise the amalgamation.

This will be a key test, as the proposed merger of insurance and pension regulators will depend on it.

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