New Delhi, Sept. 8: The government plans to bring the Forward Markets Commission (FMC) under the finance ministry and then consider making it an arm of market regulator Sebi, following the payment crisis at NSEL.
The government is also taking a close look at whether hawala, or illegal money, was used in trading at NSEL — a bourse which seemed to have taken bids far more than the underlying commodities and for longer time frames than allowed. The two groups appointed by the Centre to probe the crisis are expected to submit their reports next week.
Trading dried up on NSEL after the government asked it to stop taking bids for deliveries with settlement periods of more than 11 days, creating a payment crisis on the commodity bourse.
NSEL is now facing a huge problem in settling Rs 5,600-crore dues to 148 member brokers, representing around 13,000 investor clients, after it suspended trading in July. An FMC-ordered audit by Swiss firm SGS has revealed that stocks with the bourse were under-reported by as much as 85 per cent.
Both the committees — a task force set up by the PMO and a committee of secretaries set up by the finance ministry — feel the FMC should be brought under the finance ministry and the Financial Stability and Development Committee (FSDC), often described as a super-regulator. The FMC is currently under the consumer affairs ministry.
The proposed notification transferring the FMC to the finance ministry will also give it the power to control all spot commodity trading exchanges.
Finance ministry officials said they believed the FMC should not only be under the administrative control of the finance ministry and the FSDC but should eventually be made an arm of Sebi as was done in the EU and the UK.
In both the UK and Europe, the securities and market regulator is a single agency — the UK Financial Services Authority and the European Securities and Markets Authority.
The logic for one regulator is that both commodities and stocks are securities and involve monetised trading of underlying assets. Hence,their regulatory principles are similar.
The FMC was created on the lines of the US Commodities Futures Trading Commission. However, officials said even the US commodities commission reported to the senate committee on banking through the US Treasury.
The Financial Sector Legislative Reforms Commission is also in favour of bringing all financial transactions, other than banking and related dealings, under one regulator — Sebi.
Meanwhile, an IT probe has found links between a few commodity trading firms and hawala operators, said officials. The income tax department is studying the money trail to see whether the money deployed was legitimate and whether profits booked on the bourse were taxed.