Wednesday, 26 August 2015

SEBI - FMC Merger - Next Generation Market Regulator

Big institutional changes in India often follow big crisis. The balance of payment crisis of 1990 paved the way for radical changes in the financial system, including near autonomy to the central bank. Electronic stock exchanges, depositories and an independent regulator for the stock market, the Securities and Exchange Board of India (Sebi) were all born in the aftermath of what became infamous as the 1992 Harshad Mehta scam. The Rs 5,600-crore payment default that grounded the National Spot Exchange (NSEL) has now triggered the merger of the Forward Markets Commission with Sebi, moving one step closer to a single regulator for all securities and derivatives.


The idea of a unified regulator has been debated within the government since the Asian currency crisis of 1997 but the actual decision finally came without the fanfare that might have been expected with the first and biggest regulatory merger ever to happen in the country. On February 28, in the middle of his budget speech, finance minister Arun Jaitley almost innocuously mentioned: "I also propose to merge the Forwards Markets Commission with Sebi to strengthen regulation of commodity forward markets and reduce wild speculation. Enabling legislation, amending the Government Securities Act and the RBI Act is proposed in the Finance Bill, 2015." Sebi Chairman UK Sinha expects the merger to be completed by end-September. A unified regulator, if it was in existence in 2014-15, would have overseen trade worth over Rs 103 lakh crore. 

The SEBI board also approved draft amendments to the existing regulations following the government decision to repeal the Forward Contracts Regulation Act, 1952, under which commodity markets were functioning so far. The draft amendments will be notified on September 28. The new regulations will enable functioning of the commodities derivatives market and its brokers under SEBI norms and integration of commodities derivatives and securities trading in an orderly manner, said SEBI. The market regulator has asked the three national commodity exchanges — MCX, NCDEX and NMCE — to set up a separate clearing corporation by September 28, 2018. Till then, exchanges can continue with the current arrangement for clearing trades by ensuring guarantee for settlement of trades, including good delivery. A standalone clearing corporation calls for an investment of Rs. 300 crore to meet the minimum net worth criteria. While the three exchanges need to have a net worth of Rs. 100 crore by May 5, 2017, the shareholding norms have to be complied by May 5, 2019.

-Source (Economic Times and Business Line)


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