A year after the NSEL scam wiped out thousands of crores of monies and investor confidence, here is a peek into what has the Government done to stop the spillover.

Post NSEL issue, the Forward Markets Commission, the commodity market regulator, has been brought under the Finance Ministry from the Consumer Affairs Ministry. A Commodity Derivatives Section has been set up under the Department of Economic Affairs (DEA).

Key development The Chairman of the Forward Market Commission (FMC) is now part of Financial Stability and Development Council (FSDC). This helps in better co-ordination among all other regulators in the financial market such as SEBI. In turn, this helps in taking co-ordinated action in case a section of the financial market gets disturbed.

The Finance Ministry will now amend the Forward Contract Regulation Act, but there are no indications that the FMC will regulate spot exchanges. However, FMC officials say that regulation for spot exchanges will require changes in the preamble and the basic structure of FMC. By its very name, the FMC can regulate only forward contracts and not one day special contracts.

Medium-term plan The Finance Ministry is planning legislative changes to ensure that only regulated entities use the term “exchange”. It is also thinking about restricting the use of the word “exchange” as has emerged from Arvind Mayaram panel which submitted its report on NSEL last week. “If the recommendations are accepted and followed by making necessary amendments to Acts, then no one other than a regulated exchange can use the term. When you say no one, it means from that day (date of notification to the amendment) no one can,” a senior Finance Ministry official told Business Line.

Implementation of the move will require amending the Securities Contract Regulation Act and adding a provision in the Forward Contract Regulation Act (FCRA) Amendment Bill, pending in Parliament now. These changes will allow only authorised regulated entities to use the word “exchange” in their names. This may also mean that only the entities regulated by the SEBI and the FMC will be permitted to use the word. This will be in line with the use of the word ‘bank’, which can only be used by Reserve Bank of India (RBI)-regulated entities. In market parlance, “exchange” refers to a regulated market place where capital market products are bought and sold through intermediaries. Accordingly, stock exchanges are recognised under Section 4 of SCRA and are regulated by SEBI.

However, for the commodity market, the word “association” has been used for a regulated market place conducting forward trade under FCRA. There is a view that the word “exchange” should be substituted by “association” in the relevant regulations for forward contracts in commodities.

But, the long-term plan seems to be to merge FMC with SEBI.

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