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Benefits Of FMC-SEBI Merger For Traders & Investors

Since Jul 2013 commodities market faced lots of pressure or disappointments even FMC had taken too many positive steps to increase market volume in last 2 years which has reduced after CTT imposed by the Govt. of India and NSEL scam of Rs 5600.

In recent addition, Capital markets regulator Sebi on Tuesday said it expects the proposed merger of commodities regulator FMC with it to be completed by September-end and assured that that there will be no layoffs after the amalgamation. SEBI chairman U K Sinha further said that we will be able to take over the responsibility by end of September.

After this merger there would be lots of benefits for the trader or investors and we are trying to point out few of them below:

  1. New products such as options, indices, weather derivatives and freight can be introduced. MCX is ready to introduce these for some years." Weather and freight derivatives are otherwise not traded in India but globally there are vibrant futures in the Baltic Freight index and even in the weather. The Bill proposes to empower the central government to declare weather and freight as derivatives permissible to be traded on the exchanges.
  2. The merger will give a significant boost to the integrity of the commodities market. FMC was dependent on the government for finances. It was short staffed and technologically constrained to regulate and monitor the markets. A Nielsen report in 2013 suggested that dabba trading (illegal off-exchange derivative trading) in commodities had increased 5-7 times after the commodity transaction tax was introduced in July 2013. Sebi should be able to play an instrumental role in controlling this and to bring back the dabba trading to the exchanges.
  3. Benefit of a 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.
  4. The merger should also mean an improvement in the overall efficiency for the market participants, including a reduction in transaction costs.
  5. It will streamline the transaction processing marketplaces in India and also bring consistency in practices, regulations and operations for exchanges, exchange members, investors and traders, and there will be a single KYC (know-your-customer processing). Overall, a well-thought and positive move, which will help the sector and investors alike.