The Hindu Business Line : Bill to provide autonomy to FMC introduced in Parliament

Smoothening trade
The Bill provides for option trading, which was not allowed so far. This could ensure more participation, especially by farmers and growers.
It also provides for increasing the number of FMC members and creation of a fund to manage the affairs of the commission.

Our Bureau

New Delhi, March 13 A Bill to provide greater autonomy to commodities market regulator Forward Markets Commission (FMC) and enable trading in commodity-related intangibles like commodity options was introduced in the Lok Sabha on Thursday.

‘Forward contract’

The Forward Contracts (Regulation) Amendment Bill 2008 also seeks to amend the definition of ‘forward contract’ to include ‘commodity derivatives’. Currently, trading in commodity futures exchanges covers only ‘goods’ that are physically deliverable.

Once the commodity derivatives are included within the ambit of ‘forward contract’, it would enable the commodity exchanges to trade in commodity options, weather derivatives, index futures and other such intangibles.

The Bill seeks to increase the maximum number of FMC members from four to nine, out of which three to be whole-time members, and a Chairman. It also confers powers upon the FMC to levy fees.

All grants, fees and sums (other than penalties) received by the FMC would be credited to a Forward Markets Commission General Fund, which would be applied to for meeting the expenses of the Commission.

Centre rules

The Bill seeks to designate the Securities Appellate Tribunal (SAT) as the ‘appellate tribunal’ for the purpose of the Forward Contracts Regulation Act. Appeals against the FMC’s orders will go to the SAT and from the orders of SAT to the Supreme Court.

Dr Akhilesh Prasad Singh — who is Minister of State for Food, Consumer Affairs and Public Distribution — introduced the Bill in the Lok Sabha. The Bill seeks to replace the Forward Contracts (Regulation) Amendment Ordinance, which was promulgated on January 31, 2008.

Once the Bill is enacted, the Centre will get the power to issue directions to the FMC on the matter of policy and also to supersede the FMC in certain cases.

Our Chennai Bureau reports: A feature of the bill is allowing options trading, which was not allowed earlier. This facility, wherein it is enough for a market participant to only a premium for the contract he or she buys or sells, is expected to bring in more participation in the form of growers.

The Bill would also require all commodity exchanges to be set up as corporations and separate trading rights from ownership in an exchange.

According to analysts, the proposal to separate regulators and exchanges for securities markets and commodity markets is different from the structure in most countries. There could also be conflict of interests since the Forward Markets Commission will regulate all commodity derivatives, while the markets for the underlying goods will be regulated by State governments. This could lead to divergence in regulation, they say.

Other issues of note, according to PRS Legistlative Research, an independent initiative, are

Depositories, VAT and penalties proposed in the Bill.

Though the trading system for commodity derivatives uses depositories established under the Depositories Act, 1996, the depositories are regulated by SEBI and not FMC. Lack of Value Added Tax facility for inter-state sales, and limitations of Cenvat facility could deter delivery-based trading in commodity derivatives, according to the agency. Penalties applicable for various offences are significantly lower than that under the SEBI Act, 1992 for similar offences in the securities market.

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Bill to provide autonomy to FMC introduced in Parliament