By Barnik Ghosh
While the budget 2015 is being heralded as anywhere
between good to excellent, a particular portion of the budget speech caught
many a fancy as Mr. Jaitley, Finance Minister announced “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.”
This move had been suggested by The
Financial Sector Legislative Reforms Commission (FSLRC), which had recommended
that the Securities and Exchange Board of India (SEBI), Insurance Regulatory
and Development Authority (IRDA), Pension Fund Regulatory and Development Authority
(PFRDA) and the Forward Market Commission (FMC) should be merged into a single
entity as a unified financial agency (UFA).
The FMC was moved to the Finance
Ministry in September 2013. The move had come in the light of a Rs 5,600 crores
payment crisis at National Spot Exchange Ltd (NSEL). FMC, was earlier with the
Consumer Affairs Ministry.
The proposed merger will have the
(a) help streamline the monitoring of commodity
futures trading. It would also help in curbing the wild speculations which
normally exists in the commodities market.
it easier for the single unit to track the movement of money among group
companies engaged in different tradable products
integration of commodities futures industry into the financial trading
of a faster introduction of new products in commodities like options and
may also expect a common clearing house across all assets, thus, providing the
investors with access to all trading assets in a common screen.
the transaction costs for markets, as many companies need not have to form multiple
entities and administrative hurdles to comply with the various regulations
introduction of new derivative contacts
SEBI is expected ( and required) to be better
equipped to handle the new challenges that will arise with the introduction of a new line of activity
under its regulatory umbrella.
However, the Reserve Bank of India (RBI) would
continue to be the interface for currency derivatives.
The Proposed Amendments
The Finance Bill of 2015 (Bill) has already
introduced the proposed amendments to the Forward Contracts (Regulation) Act,
1952 (FCRA) and the Securities Contracts (Regulation) Act, 1956 (SCRA).
Amendments To FCRA
According to Clause 158 of the Bill, all recognized
associations under the FCRA 1952 shall be deemed to be recognized stock
exchanges under the SCRA 1956. This Clause inserts a new Section 28A to the
existing FCRA 1952.
Such a deeming provision effectively allows the
Securities and Exchange Board of India (SEBI) to be the common watchdog for
both securities and commodities market.
Further, as per the proposed Section 28A(5) of the FCRA,
SEBI has also been granted additional powers in addition to the powers granted
under SCRA to exercise all powers of the FMC with respect to the recognized
associations for a period of one year.
Clause 159 of the Bill inserts a new Section 29A to
the FCRA which states that the FCRA stands repealed.
The proposed Section 29A(d) and (e) lays down that
all offences committed under the FCRA 1952 and the existing proceedings shall
be continued to be governed by the FCRA 1952 and all fresh proceedings may be initiated by SEBI under the
FCRA 1952 within a period of three years from the date on which FCRA 1952 is
repealed, as if the FCRA 1952 was not repealed.
Proposed Section 29B of the FCRA 1952 states that the undertaking of the FMC shall be
transferred, and vest with SEBI.
Amendments to SCRA 1956
Clause 160 of the Bill proposes the amendments to
the SCRA wherein the relevant definitions namely “commodity derivative”, “non-transferable specific delivery
contract”, “ready delivery contract”, “specific delivery contract”, “reverse
to the commodities market have been inserted into the SCRA.
Clause 162 of the Bill inserts Section 30A to the
SCRA 1956 which states that the SCRA shall not apply to non-transferable specific delivery
contracts. A proviso has been provided wherein it has been stated that no
person shall be a member of an association in any area specified under Section
13 (contracts in notified areas illegal in certain circumstances). Hence,
Section 13 of the SCRA shall be applicable.
The proposed merger will be highly beneficial to the
growth of the commodities market in general and make it open to a larger
section of the retail public. The amendments made in the SCRA and the FCRA is
also of significance as the same provides a clear roadmap for the proposed
merger to be completed. However, as a matter of caution and to ensure that the
impact of the merger is fully understood and assimilated, it may be prudent to
introduce the same in stages after awareness and training programs to benefit
the investors and traders alike.
author is a Senior Associate, Corporate Practice,
Lakshmikumaran & Sridharan, Kolkata