SEBI set to tighten commodity derivatives trading regime

Shishir Sinha | | Updated on: Jan 23, 2018


Plans separate registration for traders, post FMC merger; not to regulate spot trading

The Securities and Exchange Board of India (SEBI) will put in place a stricter regulatory regime for commodity derivative participants after the Forward Markets Commission (FMC) is merged with it.

Currently, the FMC regulates the commodity markets – spot and derivatives.

The new regime will prescribe separate registration for commodity participants. However, after the merger, SEBI will not regulate spot trading or the Warehousing Corporation.

The Budget had proposed the merger of the FMC with SEBI and the process will start with the passage of the Finance Bill, 2015. Parliament is scheduled to take up this Bill during the second phase of the Budget session, which resumed on Monday.

“With the repeal of the Forward Contract Regulation Act, commodity derivatives will be notified as securities under the SEBI Act. Accordingly, regulations related with other participants will also be applicable for those in the commodity market,” a senior Government official told BusinessLine .

Currently, FMC has the power to suspend errant members of commodity exchanges, but it lacks the power to register members or investigate, and enforce or levy a penalty like SEBI. However, after the merger, investigations or penalties can be levied against an errant member, the official said. Last August, the Finance Ministry issued the draft ‘Forward Contracts (Regulation) (Intermediaries) Rules, 2014’, which prescribed mandatory registration and de-registration of commodity brokers. It also said that the FMC would also have the right to inspect books and accounts of an intermediary and take disciplinary actions.

More powers The Ministry also proposed to strengthen the FMC with the power to cancel, suspend and debar the registration of an errant intermediary.

However, the rules have not been notified. These provisions were also part of the Forward Contracts (Regulation) Amendment Bill, 2010, which lapsed with dissolution of the 15th Lok Sabha. After the merger, the powers SEBI has for equity and currency derivative participants will be applicable on commodity traders, the official said.

The official also said following the merger, the present system of separate registration by a financial intermediary for commodity trading will continue for at least the “next few years”.

After merger, all the recognised associations (commodity exchanges) providing trading facilities in derivative trading will be deemed to be recognised stock exchanges under the Securities Contracts (Regulation) Act, 1956.

These exchanges will be given enough time to achieve eligibility to start trading in equity or currency derivatives.

However, being eligible does not mean one can lay claim on providing any new trading platform. SEBI will have discretionary power to give approval for starting anything new, the official said.

Published on April 21, 2015
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