Finance Minister Arun Jaitley had announced the merger of FMC with the capital market regulator Sebi to strengthen the regulation of commodity futures market.
The merger of two regulators, the over 60-year-old commodities regulatory body Forward Markets Commission (FMC) and the Securities and Exchange Board of India (Sebi) marks radical change while regulating commodity futures market. Finance Minister Arun Jaitley, formalised the merger by ringing the the customary stock market bell.
The Sebi chairman UK Sinha said commodities market players will have to adjust to the new regulations witin one year in order to follow the same norms applicable to their equity segment peers.
A unified regulator for commodities and capital markets will help streamline monitoring of commodity futures trading and curb wild speculations. In the wake of a Rs 5,500-crore payment crisis at the National Spot Exchange Ltd, FMC was brought under Finance Ministry in 2013.
Starting September 29,commodity brokers will need to increase their net worth and come under direct Sebi oversight.
Applauding finance minister for the action, the Sebi chairman said the regulator will focus on price discovery for futures market. "In order to ensure that nothing is disrupted, there is no discontinuity... We are giving some timeframe so that they can adjust with the new regulations," Sinha said.
Also read: FMC-Sebi merger: Huge leap forward, says Deena Mehta
Below is the transcript of Arun Jaitley, UK Sinha and Shaktikanta Das interview with Menaka Doshi on CNBC-TV18.
Q: As you pointed out, the responsibility that now lies on Sebi shoulders is wide and will require additional resources. Have there been any conversations between Sebi and the finance ministry or maybe any kind of temporary grant because Sebi in itself is a self-sufficient body to that extent?
Sinha: Don't worry about the resources. The parliament has ensured that SEBI as an independent regulator has also got independence so far as the financial matters are concerned. We are not in the same position in which the US Securities and Exchange Commission (SEC) is for example. So we will take care of these requirements.
Q: You have outlined the challenges of a unified regulator. If I may ask you to go into a little bit more detail especially in the light of what has gone on with the NSEL's spot exchange, I will draw that differentiation because this spot exchange was not a regulated exchange so it was a very different situation even now spot exchanges will lie possibly outside of the mandate of Sebi but they have in some senses besmirched commodities trading so to speak. So what you expect will be the challenges going forward for Sebi ?
Jaitley: I think it would be a challenge for Sebi because this is a new additional responsibility they have. This is not an area they have dealt with in the past because you had another commission dealing with it but then Sebi has now matured over the last 25-27 years as an institution and it has become an extremely fair, independent market regulator, it has got the pulse of the market, it has got the pulse of the trade in control and since there is now a synergy between the nature of trading, I don’t see Sebi taking much time before it fits into this new responsibility.
Day-to-day challenges of situations as institutions mature -- they get to deal with them. So I have full confidence that Sebi now as an independent regulator of high credibility will fit into this job quite well.
Q: Mr Sinha pointed out that he is or the regulator now is in favour of increasing or introducing new participants in the commodities, derivatives market and he also spoke of foreign portfolio investors, now as Mr Das pointed out in his speech the agri-commodities market often does knee-jerk react sometimes and we have seen in the past -- not in the recent past -- sometimes bans on future trading of agricultural commodities especially when the situation is a little sensitive. So I am just curious to know, is the ministry in itself comfortable with the idea of bringing in foreign investors into agricultural commodities?
Das: This is one market, which is evolving and there are several experiences we have gained from the past. What you have mentioned about certain controls being introduced, the government also has to be alive to the overall price situation. How it impacts the consumers.
However, as we go by, a balance has to be found between price stability and market development and deepening the market. Price stability and policy certainty -- these are the twin challenges, which the Sebi has to deal with.
What I mean to say is that, we have to have a situation where the prices do not become unduly volatile or they suddenly go up steeply in a manner that it affects consumers that is one objective to which government is committed to provide fair prices.
At the same time, there has to be policy certainty also. You mentioned sometimes the controls are introduced, sometimes the controls are removed. So this is a very challenging task and I am sure over the years Sebi will be able to strike a balance and give its recommendations to the government and this is one area where government is constantly in dialogue with various stakeholders with various experts and also from nowon with the Sebi.