The commodities futures market is poised to get an independent regulator. The government has decided to designate the Forward Markets Commission (FMC) as the regulator for this market, according to a top government official.
This market is now bigger than its equities counterpart.
At present, FMC is part of the consumer affairs department, which will soon approach the Union Cabinet for approval to introduce a Bill to amend the Forward Contracts Regulation Act (FCRA) in a way that gives statutory backing to FMC.
The Bill proposes to provide more teeth to FMC. It will get powers to levy fines and penalties and allow options trading in commodities as well as in commodities indices. The Bill is also likely to pave the way for the entry of institutional investors in trading of commodities.
In an acknowledgement of FMC's imminent status as an independent regulator, it has been decided to give it a seat on the High Level Coordination Committee on Financial Markets (HLCC), an inter-regulatory coordination agency, according to the government official.
The decision to make FMC independent was taken last month after consultations between the finance ministry and the consumer affairs department at the behest of the Cabinet secretary. It ends the debate whether the Securities and Exchange Board of India, or Sebi, the stock market regulator, should be given the powers to regulate commodity futures as well.
HLCC now has representation from the Reserve Bank of India, the finance ministry, Sebi, Insurance Regulatory and Development Authority of India, and the Pension Fund Regulatory and Development Authority.
The Bill seeking amendments to FCRA is likely to be placed during the current session of Parliament, which is slated to conclude at the end of this month.
The commodity futures market is the largest exchange-traded futures market in India. It has clocked Rs 57.29 lakh crore (Rs 57.29 trillion) in trading volume since the beginning of this year.
The decades-old stocks futures -- including the index variety -- have done no more than Rs 52.15 lakh crore (Rs 52.15 trillion).
Index futures are not traded on commodity exchanges.