Business

Sebi-FMC merger: Soon, commexes may start equity trading

Merger of forward markets commission with the SEBI opens huge opportunities for commodity exchanges to expand in segments permitted under stock exchange and vice-a-versa as per new norms proposed by the government in the finance bill. 
As per provisions of the bill in section relating to merger of FMC with the SEBI, it has been provided that, “all recognised associations under forward contract regulation act shall be deemed to be recognised stock exchanges under the Securities contract regulation act”.

While all exchanges including stock and commodity exchanges are waiting how and when the merger is taking place, they are excited about the development.

One of the senior industry officials said on the condition of anonymity that, “post-merger, stock and commodities exchanges subject to the permission from the Securities and Exchange Board of India will have fungibility in penetrating each other’s market segment as all of them will be known as stock exchanges and they can do business in segments that are permissible to stock exchange”. This means that commodity exchange can start currency derivatives and equity trading and stock exchange can launch commodity trading. 

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In fact Bombay Stock Exchange received Sebi approval to set up commodity exchange, however according to experts, post-merger of two regulators, BSE can straight forward launch commodity trading as a segment of it. NSE already has stake in NCDEX which is a commodity exchange and MCX has stake in the Metropolitan stock exchange (earlier MCX-SX). 

Not only that Clearing Corporations, depositories all will get such funngibility and one clearing corporation of stock exchange will do clearing and settlement for all segments while depositories will be allowed to handle commodities like earlier.

Even market intermediaries will benefit from the merger. P. K. Singhal. Joint Managing Director, MCX said that, “The benefit of FMC and SEBI merger is that securities brokers who have memberships of commodity futures through their subsidiary companies will benefit, as it will reduce the duplication in a number of issues as well as decrease the cost of transaction and compliance.” 

Hence looking at new norms stock exchanges are equally happy with the merger. Managing Director & CEO, Bombay Stock Exchange Ashishkumar Chauhan, “Sebi and FMC merger is a welcome move. It will streamline the transaction processing marketplaces in India and also bring consistency in practices, regulations and operations for exchanges, exchange members, investors, traders and there will be a single KYC. Overall, a well thought out and a positive move which will help the industry and investors alike.”

More interestingly, new avatar of stock exchanges where commodities will also be traded, a newer instruments and derivatives not traded so far in India will be traded. Singhal of MCX said that, “down the line, in a year or so, new products such as options, indices, weather derivatives and freight can be introduced, MCX has been ready to introduce them since the last few years.” Weather and freight derivatives are otherwise not traded in India but globally there are quite vibrant futures in Baltic Freight index and even in weather. Finance bill has given powers to central government to declare weather and freights as derivatives permissible to be traded on the exchanges.