The failure to resolve the dispute over sharing of powers might delay the introduction of derivatives trading in the country, according to the Government.

The committee meeting -- attended by RBI governor Bimal Jalan, Sebi chairman DR Mehta, DEA secretary EAS Sarma and chief economic advisor Shankar Acharya -- discussed an internal note prepared by the capital market division of the finance ministry on formal division of powers between the two regulators but failed to arrive at a solution.

Instead, the committee appointed a three-member sub-committee, comprising RBI representative K Ahmad, Sebi appointee D Rawal and joint secretary in the finance ministry J Bhagawati, to find a solution. The committee is expected to submit its report within the nextfew days.

The main issue before the committee was the repeal of the 1969 amendment to the Securities Control Regulation Act (SCRA) that banned forward trading and the evolution of a smooth regulatory set-up in its aftermath so that trading in derivatives could take off smoothly. Currently, the ban on forward trading exists though the finance ministry had been granting exceptions on a case-by-case basis. The idea is to do away with this adhocism by putting into place certain standard frameworks.

The finance ministry had consistently pushed for resolving the overlapping of responsibilites and control of Sebi and RBI over various capital market instruments. The idea was to delineate the areas of control so that both the regulators were assigned specific tasks of creating the necessary regulatory framework for allowing forward trading in the instruments they control.

The deadlock in the committee meeting was due to the inflexible views of the RBI and Sebi on the issue of control. Sebi had laid claim topowers to govern the entire securities market, including all transactions in government debt. The RBI had vehemently opposed any such transfer of powers.

Currently, the regulator is the RBI though there is some overlap of responsibilites because trading in government debt in conducted in Sebi governed stock exchanges while the central bank requires every transaction to be registered in the SGL register.

Corporate non-convertible debentures (NCDs) is another instrument where there is duality of control. While the regulator is Sebi, the interest rate regime is under the control of RBI.

The finance ministry has been of the view that unless these inconsistencies were resolved, derivatives trading would fail to take off.

The committee will meet again after the submission of the report by the three-member committee. But only time will tell whether the year-long imbroglio will get resolved, given the opposite views taken by the two regulators.