The commodity forward trading regulator Forward Markets Commission (FMC) will now be under the administrative control of the Finance Ministry. With this, all financial sector regulators — Securities and Exchange Board of India, Reserve Bank of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory Development Authority besides FMC — have been brought under one umbrella.
“This move aims at better co-ordination among regulators to resolve the on-going National Spot Exchange Ltd (NSEL) crisis and to chart out the future course of action to ensure that such a crisis does not re-occur,” a senior Finance Ministry official said. NSEL used to offer spot contracts in commodities before its operations were shut down after the Rs 5,600-crore payment crisis erupted in July this year.
NSEL was not under any regulator. But, after the payment crisis, FMC was empowered to supervise settlements and issue binding orders. Also, a Committee under the Economic Affairs Secretary Arvind Mayaram was set up to give suggestions. It is assisted by two task forces. These task forces will submit their report on September 12 and, accordingly, the Mayaram committee will finalise its views.
The notification, dated September 6, provides for matters related with the FMC and forward contracts to be under the Department of Economic Affairs (DEA) of the Finance Ministry. These matters were earlier under the Department of Consumer Affairs of the Ministry of Consumer Affairs, Food and Public Distribution. The notification also said that DEA would look after the control of futures trading and the Forward Contract Regulation Act, 1952.
Since commodity forward is also a kind of financial transaction and FSLRC has recommended that all financial transactions (bar banking, which will continue to be regulated by RBI) be brought under one regulator that is SEBI, ultimately FMC will be merged with SEBI.
However, this will be a long process, as it will require repealing the Forward Contract Regulation Act and bringing amendments in the SEBI Act.
The Consumer Affairs Ministry had earlier agreed to shifting FMC to the Finance Ministry, as it did not have adequate manpower and expertise to regulate the complex commodity futures markets. The Consumer Affairs Ministry had been overseeing FMC’s functioning, which regulates futures trading on 21 commodity bourses, including MCX and NCDEX.