Sebi board approves proposal for FMC merger

24 Aug 2015

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The board of capital market regulator Securities and Exchange Board of India (Sebi), which met in Mumbai today, approved the proposal for merger of commodities market regulator Forward Markets Commission (FMC) withy itself.

The board approved the draft amendment to the regulations to be notified on 28 September 2015 pursuant to the proposed repealing of the Forward Contracts Regulation Act, 1952 (FCRA), making way for merger of FMC with Sebi.

These regulations will enable functioning of the commodities derivatives market and its brokers under Sebi norms and integration of commodities derivatives and securities trading in an orderly manner, a sebi release said.

The draft regulations provide for compliance of Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (SECC Regulations) which are currently required to be complied with by stock exchanges.

The major compliances include norms related to net-worth, shareholding norms, composition of board, corporatisation and demutualisation and setting up of various committees, turnover, infrastructure etc. To ensure non-disruptive transition, Sebi has prescribed following timelines for aligning to the different provisions of SECC regulations:

  • Corporatization and demutualisation of regional commodity derivatives exchanges  within 3 years from the date of merger;
  • Availing services of a clearing corporation within 3 years of the date of merger. Till then, clearing may continue with the current arrangement. However, the commodity exchanges should ensure guarantee for the settlement of trades including good delivery;
  • Net-worth - timeline as provided by FMC, ie, 5 May 2017 for national commodity derivatives exchanges and within 3 years from the date of merger for regional ones;
  • Shareholding - timeline as provided by FMC, ie, 5 May 2019 for national exchanges and within 3 years from the date of merger for regional exchanges;
  • Governing board norms - within one year from the date of merger for national exchanges and within 3 years for regional exchanges.

The proposed norms also emphasise on strengthening of risk management of the exchanges. Further, investor protection norms similar to the equity markets would be provided by strengthening the arbitration mechanism and investor grievance redressal mechanism.

The Sebi board also approved amendments to SEBI (Stock Broker and Sub-Broker) Regulations, 1992 to provide for registration of the members of the commodity exchanges. The existing members of these exchanges would be required to make an application for registration with Sebi within 3 months from the date of notification in this regard. In such a case, they will be allowed to continue their activity unless their application is rejected by Sebi.

The members would have to comply with the requirements for registration as members of exchange, as specified in Securities Contracts Regulation Rules, 1957 and SEBI (Stock Broker and Sub-Broker) Regulations, 1992 such as constitution, number of directors, experience, networth etc within a period of one year from the date of notification by the government for the transfer and vesting of rights and assets of the FMC to Sebi.

For the new members, the above regulations will apply ab-initio.

Sebi also said it would allow additional anchor investors for public issuances in which preferred allocation is set at more than 2.5 billion rupees, although sales of below that amount would retain the current limit of 25 investors.
 

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