On 28th September 2015, Forward Markets Commission (FMC), regulator of the commodity market merged with Securities and Exchange board of India (SEBI), the regulator of equity and corporate bond market in India. This is a first case of merging of two regulators in India. In this article we discuss the need and implications of this merger.
Commodity trading has a long history. Organized commodity trading started by the Chicago Board of trade (CBOT) in 1848. In India, it was started by Bombay Cotton Trade Association in the year 1875. To regulate the commodity market, FMC was established in 1953 under the Forward Contracts (Regulation) Act 1952 (FCRA). FMC was designed to keep a close watch on the risk management, for surveillance in the forward and futures market, to provide guidelines about the dissemination of information and for allowance or withdrawal of the commodity futures in the Indian market.
SEBI was set up in 1988 as a non-statutory body for regulating the securities markets and became an autonomous body in 1992, with full independent powers. However, FMC remained a recommendatory body and the Government of India had all the regulatory powers and exercised them based on the recommendations of the FMC.
The Regulators’ role is to protect investors from any misconduct in the market. In both equity or commodity markets, failure of the firms (in terms of not getting the desirable capital from the market at appropriate borrowing rate or not being able to provide returns according to the risk borne by the investors) and commodity futures (failure in terms of efficient price discovery or delivery of the underlying) are not only disruptive for the investors, but also for the overall economy. FMC and SEBI both have provided basic infrastructure, proper guidelines for the development of the commodity and equity market. Sound regulations ensure the well-functioning of markets and reduce the chance of failure of firms and instruments. However, full protection from failure is not possible. Both equity market and commodity markets have suffered due to certain misconduct of the market participants… to read full article courtesy by ( http://financelab.iimcal.ac.in/artha/index2.php ) click here