The Hindu Business Line : FMC drafting slew of norms for commodities

Distinctive features
The amendment Bill and draft regulations are based on SEBI Act
Another feature would be to lift ban on options trading and provide a broader definition of derivatives.

Mumbai , Nov. 9

Commodity futures market regulator Forward Markets Commission (FMC) is gearing up to considerably bolster its regulatory oversight once the Forward Contracts (Regulation) Amendment Bill 2006 is passed. The Bill, currently, is with the Parliamentary Standing Committee and could be tabled in the forthcoming winter session.

Pending amendment, FMC has been internally working on draft regulations to monitor and govern a host of market participants and relationships amongst them, said Mr S. Sundareshan, Chairman, FMC.

Areas identified

FMC has identified 15 areas for regulations for this purpose. These regulations, among others, intend to cover areas such as commodity pool operations, depositories, awareness and investor protection, portfolio management services or PMS managers, commodity brokerages / members, capital adequacy, customer interest, maintaining financial records and the like.

To deter malpractices in futures trading the regulator has decided to levy penalties that are far from paltry. Indeed, penalties could become commercial in nature. For instance, unfair trade practices or malpractices will attract penalties extending to the whole of the profit made through the transaction resorting to such practices or as high as Rs 25 lakh.

Inadequate HR

Although the commodities future trading has expanded at an incredible rate of 120 times in the past three years of opening up of the market, the Commission's work is stymied because of inadequate human resources. Even now, FMC's staff strength is what it was six years ago, he said adding that human resource was a major limitation faced by FMC for more effective regulation.

Soon, the Commission is likely to seek expertise of professionals such as lawyers, accountants and those from the derivatives industry. FMC's three broad divisions namely, Commodity Division, Enforcement Division and Administrative Division, are expected to be strengthened. .

The amendment Bill and draft regulations are broadly based on the precedent of SEBI Act and regulations there under with appropriate modifications so as to suit the distinctive features of the commodity market, he said.

`Misconception'

Emphasising that there has been a misconception in the trade fraternity that the Bill seeks to further liberalise the markets, Mr Sundareshan said: "It is not true". The Bill seeks to amend the FCR Act in order to provide appropriate functional, financial and regulatory autonomy to FMC, he said. A secondary feature of the proposed amendment would be the lifting of ban on options trading and a broader definition of derivatives will be incorporated.

Of the three steps required to be taken in order to commence futures trading in the country, two have been taken, namely lifting of ban on commodities derivatives trading and setting up of national exchanges to provide a trading platform. The last requirement was to put regulatory mechanism in place, which is what the Bill now seeks to provide, the FMC chief pointed out.

Currently, FMC is an arm of the Union Ministry of Consumer Affairs and Public Distribution.

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