Sebi merges FMC, plans to let in FPIs in commodities derivatives market

In the first ever merger of two regulators, commodity market watchdog Forward Markets Commission (FMC) was formally merged with capital market regulator Securities and Exchange Board of India (Sebi) today.

Finance minister Arun Jaitley heralded the historic event of merger of Forward Market Commission (FMC) with Sebi by striking the gong at a function held in Mumbai today.

The merger of the over 60-year-old FMC with the younger but much bigger capital market watchdog will create a unified regulatory body with overarching powers.

Sebi has also formed a commodity cell by posting its senior officials, while two internal departmental committees (one each in Integrated Surveillance Department and Market Intermediaries Regulation and Supervision Department) have been set up.

Taking charge of regulating the commodities derivatives market, Sebi chairman UK Sinha on Monday said it would look at allowing foreign portfolio investors and banks in this market in next few months.

With the Forward Markets Commission (FMC) formally getting merged with Sebi, Sinha said the first priority would be to develop trust in the commodities market and then the focus would be on developing the market.

The Sebi chief said new participants like banks and foreign portfolio investors (FPIs) as well as more products would be allowed.

''These development measures will happen in few months.

''Right now, our focus would be on placing the regulators environment,'' he said at an event to mark the merger of FMC with Sebi.

Further, Sinha said Sebi would focus on how prices and benchmark rates are fixed in commodity markets as well as look at the possibility of having products like options and futures.

Sebi and the government have notified all enabling regulations, including amendments to various existing norms, ahead of the official merger.

An internal committee was earlier set up at Sebi to evaluate and suggest regulatory changes for merger and prepare a roadmap for the same.

Sebi has also sought help from agriculture ministry with regard to the data sources for the prices and to improve the methodology for determination of final settlement price.

The structure and manpower strength of divisions and departments handling the responsibility of regulating the commodity derivatives markets has been finalised.

The manpower requirement will be met with the officers from FMC (both cadre and deputation) and by new hiring.

Till new recruitments are done, suitable officers have been drawn from various Sebi departments. Post-merger, as the divisions start carrying out the activities on a regular basis, based on the volume of work, an assessment of the exact manpower requirement will be carried out in near to mid-term that is six or eight months post-merger.

Earlier, presentations were made by FMC, exchanges and others including investor associations and outside experts, on operations and other issues in commodity derivatives markets.

A series of interactions by way of conference calls is also being held with officials of the US commodities markets regulator CFTC to understand the regulatory framework in that country, including risk management, product design, member regulation and surveillance.

Sebi officials visited FMC, exchanges, mandis, warehouses, assayers and gold vaults in Gujarat and Delhi among other places.

Currently, there are 12 recognised commodity exchanges, out of which six are non-operational. The operational exchanges include three national and three regional bourses.

FMC has already issued directions to non-operational exchanges including for refund of client money, resolving client disputes and refund of member deposits.

Recently, notifications were issued for absorbing seven director-level officers of FMC by Sebi, 41 other employees will become part of the central government employees' pool.

Commodities market has been hoping for FPIs to be allowed after FMC's merger with SEBI, but the Reserve Bank of India (RBI) recently told the markets regulator to keep any such decision on hold till a policy review is done by the government in this regard.

Ahead of the merger, Sebi had written to the Reserve Bank and the government in this regard, to which RBI replied that the status quo should be maintained till a policy review is undertaken by the government for allowing FPIs in commodities derivative trading.