SEBI regulations do not allow brokers to undertake any other activity. Currently, many brokers undertake merchant activities in gold, metals and agri commodities. Commodity exchanges have sought relaxation of these rules for brokers
Commodities regulator Forward Markets Commission (FMC) is all set to merge with market regulator Sebi on Monday. Post this, all brokers will have to align with Sebi Broker Regulations. Additionally, MCX and NCDEX too will witness shrinkage of members by atleast 50 percent.
Also, SEBI regulations do not allow brokers to undertake any other activity. Currently, many brokers undertake merchant activities in gold, metals and agri commodities. Commodity exchanges have sought relaxation of these rules for brokers.
After the merger of FMC with Sebi, MCX, NCDEX will be classified as deemed stock exchanges. Ofcourse, both MCX and NCDEX will have to meet networth criteria of Rs 100 crore in three years and have to set up Clearing Corp with networth of Rs 300 crore in three years.
NCDEX and MCX will also have to align with shareholding and board governance guidelines. MCX will be a listed stock exchange and will have to meet some of the listing guidelines.
However, post the merger, there will be quite a few challenges for Sebi as well — finding additional manpower and financial resources to monitor the commodities market, beef up surveillance team to monitor commodity segment and aligning all securities and commodities brokers to uniform regulations.
Sebi will also have to look at physical settlements. There is no physical settlement of derivatives in cash market and futures market, which will happen in commodities market. Physical market has a default of 1-2 percent every settlement. This will be a big challenge for Sebi as cash market or the spot commodity market is not Sebi, it is with APMCs. That is where the challenge comes in.
MCX will also be the only listed exchange.