PM helped avert FMC-Sebi merger

Written by Sanjay Jog | Mumbai, Jan 25 | Updated: Jan 26 2008, 05:28am hrs
The Forward Markets Commission (FMC) has Prime Minister Manmohan Singh to thank for its autonomy. But for his intervention, FMC would have ended up merging with Securities & Exchange Board of India (Sebi), as lobbied by the finance ministry. Insiders say the PM went with the ministry of consumer affairs view that FMC should retain its regulatory role in the commodities market, and should not be merged with the stock market regulator.

The PM, sources say, preferred to go by the provision under rules of business and upheld the consumer affairs ministry contention that FMC, which deals with commodities and agricultural produce, should work independently.

The finance ministry had, however, strongly argued that Sebi could be given additional powers to regulate commodities exchanges as well. But once the PM ruled in favour of FMC, it became necessary to give it more teeth to play out its role. Thus, the Cabinet on Thursday cleared an ordinance to change the Forward Contract (Regulation) Act, 1952.

The finance ministrys argument was that in a commodity exchange, spot and derivatives markets operate on different platforms. The spot market, equivalent to the cash section in the securities market, basically operates at the state level (APMC, mandis). In contrast, in the securities market, the cash and derivatives sections operate on the same platform.

The ministry felt that if both these markets were under one regulator, it would save cost and introduce synergy. Synergy has now been obtained at the appellate level, where the appellate authority for FMC would be the Securities Appellate Tribunal. This would ensure uniformity in the appellate decisions of Sebi and FMC without disturbing the regulatory features of the commodities market.