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Changes in Regulations post SEBI – FMC Merger

Finsec Law Advisors

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In order to infuse confidence in the commodities market, the Finance Ministry, in the Budget speech of 2015, proposed the amalgamation of the commodity market regulator i.e. FMC with its capital market counterpart i.e. SEBI. The same was formalised on September 28, 2015.

Pursuant to the said merger, SEBI carried certain amendments to the Securities Contracts (Regulation) (Stock Exchange and Clearing Corporation) Regulations (“SECC”) and the SEBI Broker Regulations to facilitate the integration of the commodities derivatives and securities trading and to enable the functioning of the commodities markets and its participants under SEBI norms.

The SECC Regulations are amended to incorporate ‘commodity derivatives exchange’ as a recognised stock exchange which assists, regulates or controls the business of buying, selling or dealing in commodity derivatives. The regulations require all national commodity derivatives exchanges to comply with the minimum networth requirement, shareholder norms and the governing board norms before May 5, 2017 whereas the regional commodity derivatives exchanges are required to meet the same within 3 years from the date of the merger. The regulations require all the commodity derivatives exchanges to avail the services of a clearing corporation within 3 years from the date of the merger, however till then the exchanges are allowed to continue with their current arrangement and are required to ensure guarantee for settlement of trades including delivery.

The SEBI Broker Regulations are amended to provide for the registration of the brokers of the commodity exchanges. The existing brokers of the commodity exchanges are required to comply with the requirements for registration as members of exchange as provided under Securities Contracts (Regulation) Rules, 1957 and SEBI Broker Regulations within 1 year from the date of merger. Further, the amendments restrict the stock brokers who carry on the activity of buying, selling or dealing securities from undertaking the activity of buying, selling or dealing in commodity derivatives.

The SEBI – FMC merger was one of the recommendations of the Financial Sector Legislative Reforms Commission, which was formed to suggest comprehensive reforms for financial sector in India. The said merger will bring in uniformity in the regulations of commodity and equity markets and will strengthen the regulation of commodities market in India.