The proposal made by several expert committees as well as the Union Finance Minister in the Union Budget for 2015-16, for effecting a merger of the Forward Markets Commission (“FMC”) with the Securities and Exchange Board of India (“SEBI”) in order “to strengthen regulation of commodity forward markets and reduce wild speculation” has finally fructified and been made effective. The merger of SEBI with FMC was unveiled by the Union Finance Minister, Mr. Arun Jaitley on September 28, 2015 with the undertaking for merger signed by the respective chairmen of FMC and SEBI. With the merger, the Forward Contracts (Regulation) Act, 1952 (“FCRA”) has been repealed with effect from September 29, 2015. The commodities derivatives market will now be regulated by SEBI under the Securities Contracts Regulation Act, 1956.
In order to effect the merger, SEBI has amended the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 and the SEBI (Stock Broker and Sub-Broker) Regulations, 1992 and SEBI (Regulatory Fee on Stock Exchanges) Regulations, 2006. These regulations enable functioning of the commodities derivatives exchanges and its brokers under SEBI norms and aid the integration of commodities derivatives and securities trading in an orderly manner.
SEBI has also created a separate Commodity Derivatives Market Regulation Department for the regulation of commodity derivatives. Additional divisions have been created within existing departments of SEBI which will aid the convergence of both markets and build capacity.
With the increasing importance and popularity of the commodities derivative market in India, the merger with SEBI is an opportune event. Considering the commonality between all kinds of trading, the merger is expected to increase the economies of scope and scale. If certainty of policies and stability of prices can indeed be achieved, this merger will prove to be the biggest and most successful development / step of the securities regulator in recent times.