Mumbai: The chief regulator of the commodities derivatives markets hit out at a proposal to merge the Forward Markets Commission (FMC) with capital markets regulator Securities and Exchange Board of India (Sebi), saying such a move is irrelevant in the context of today’s globalized markets.
In a freewheeling interview earlier this week, FMC chairman B.C. Khatua said treating the commodities derivatives markets in the same way as an investment market is dangerous, and that the government should close the commodities derivatives markets rather than merge it with the capital markets.
Independent stance: FMC chairman Khatua says each market should be developed separately and be allowed a focused regulator. Ashesh Shah / Mint
Even if all other financial market regulators managing “paper instruments” are brought together, the commodity markets must always be kept separate and regulated independently given its importance for the nation as a whole, Khatua argued.
The idea to merge the two was first mooted by a high-level coordination committee on capital markets set up by the finance ministry, and also found a mention in the annual pre-Budget Economic Survey in July. The government is trying to implement the committee’s recommendations.
Khatua added that the proposal neither adequately studies the dynamics of the commodities markets nor has it taken any views on the subject from the commodity market participants. He would question the credibility and competence of the committee, the FMC chief said.
He also pointed out that the experiment in the West to treat commodity derivatives markets on a par with other financial markets has backfired. This is what led to the rise of crude oil futures contracts to an all-time high of $147 (Rs7,174 today), and the underlying physical markets started taking cues from these prices, destabilizing the global economy, Khatua said, adding that these were the dangers of commodity futures without threat of delivery.
Khatua also expressed doubts about gold exchange-traded funds that are traded on stock exchanges and regulated by Sebi. He said such contracts have doubtful legal validity and should ideally be traded on commodity exchanges. Edited excerpts:
The high-level coordination committee on capital markets has recommended integrating the operations of the commodities markets regulator (FMC) with the capital markets regulator (Sebi). And the finance ministry seems to be keen on implementing this. Do you see this happening soon?
Commodities market is very different from the capital market. The commodity market requires much more handholding and physical market reforms than the capital markets. The (commodities) market is very different from capital markets in terms of objectives and characteristics. The regulatory tools are also different. The commodity market (regulator uses) many more tools than the three-four conventional globally known tools used in the capital markets.