The Securities and Exchange Board of India (Sebi) on Monday announced new regulations for the commodity derivatives market ahead of its merger with the Forward Markets Commission (FMC).
Sebi also revamped rules pertaining to clearing corporations at its board meeting on Monday, clarified that exercise of ESOPs is not considered ‘trading’ for the purpose of regulations, except provisions relating to disclosures, and relaxed rules for anchor investors in public issues.
Commexes and commodity brokers will be required to comply with rules applicable to their stock market peers. These norms, approved by Sebi’s board on Monday, will enable functioning of the commodity derivatives market and its brokers under Sebi norms and integration of commodity derivatives and securities trading in an orderly manner. The new rules will come into effect from September 28.
Sebi said the new regulations provide for compliance of Securities Contracts Regulation (Stock Exchanges and Clearing Corporations) Regulations, 2012, which are currently required to be complied with by stock exchanges.
“The proposed norms also emphasise on strengthening of risk management of the exchanges. Further, investor protection norms similar to the equity markets would be provided by strengthening the arbitration mechanism and investor grievance redressal mechanism,” Sebi said. The major compliances include norms related to net worth, shareholding norms, composition of board, corporatisation and demutualisation and setting up of various committees, turnover, infrastructure, etc. To ensure non-disruptive transition, Sebi has prescribed specific timelines for aligning different provisions of the SECC Regulations.
A net worth of Rs 100 crore would have to be acquired within three years by the exchanges. Announced by finance minister Arun Jaitley in Budget for 2015-16, FMC’s merger with Sebi will help streamline regulations and curb wild speculation in the commodity market, while facilitating growth of the market.
The Mumbai-headquartered FMC was set up in 1953 under the Forward Contracts (Regulation) Act (FCRA) as a statutory body under the aegis of the consumer affairs ministry. It was brought under the finance ministry in 2013.
In the beginning, FMC was only regulating regional commodity exchanges and its role was expanded after the emergence of the national electronic trading platform in 2000. At present, there are three national and six regional bourses for commodity futures in the country. Together, all exchanges clocked a turnover of nearly Rs 60 lakh crore in 2014-15, from over v101 lakh crore in the previous fiscal.
The corporatisation and demutualisation of regional commodity derivatives exchanges would need to be done within three years from the date of FMC’s merger with Sebi. For availing services of a clearing corporation also, Sebi has set a timeline of three years. Till then, clearing may continue with the current arrangement.
However, the commodity exchanges would need to ensure guarantee for the settlement of trades. For net worth, the timeline would be as provided by FMC, that is May 5, 2017, for national commodity derivatives exchanges and within three years from the date of merger for regional ones.
For shareholding, the FMC deadline of May 5, 2019, would be applicable for national exchanges, while a three-year time period has been given to regional exchanges. The governing board norms would need to be complied within a year from the date of merger for national exchanges and within three years for regional exchanges. The existing members of these exchanges would be required to make an application for registration with Sebi within three months from the date of notification on September 28. They will be allowed to continue their activity unless their application is rejected by Sebi.
On Monday, Sebi also decided to hold public consultations on a new set of norms to enable interoperability of clearing corporations. Currently, different stock exchanges have their own clearing corporations, which handle settlement of trades on the respective bourses. Sebi decided to seek public comments on recommendations made by an expert committee on Clearing Corporations chaired by eminent banker KV Kamath. Providing more clarity, Sebi said sale and purchase of shares under Employee Stock Options Programme (ESOP) will not be considered as ‘trading’ but companies need to comply with disclosure norms in this regard.
Sebi’s decision would provide a major succour for corporates, who have been seeking clarity on whether trading regulations would be applicable on exercise of ESOPs in the wake of stringent insider trading norms coming into force. The board was apprised about the representations received from industry bodies, law firms and others on the issue.
Sebi also approved relaxed norms for public offers by removing restriction on maximum number of anchor investors (currently 25) for anchor allocation of public issue worth over R250 crore. However, the requirement of number of anchor investors for allocation of up to Rs 250 crore remains the same.