One of the very bold decisions of this Union Budget was the decision to merge the Forward Markets Commission (FMC) with the capital market regulator (SEBI). Of course there are legal challenges; like the amendment to the FCRA Act, the SEBI Act etc. But these are issues that can be dealt with. There is also the issue of the political sensitivity of many commodities that are traded in the commodities exchange. But, our experience has been that once markets globalize, there is little control that can be exercised on these commodities. To that extent, such fears may be largely unfounded.
From the perspective of brokers and traders, the bigger question is what does it mean to them? Will this merger make a substantial difference to the way they function? The answer is an emphatic “Yes”.
Making life easier for brokers:
Today some of the largest equity and derivative brokers are also the major players in the commodities business. However, they are required to maintain Chinese walls between their equities and commodities business as they were regulated by different regulators. The merger of FMC and SEBI will ensure that the entire gamut of equities, derivatives and commodities will now be regulated by a single entity. This will permit brokers to offer innovative products to clients. For example; a pair between gold and Titan could be one way the synergies between commodities and equities could be leveraged.
Brokers also save huge costs in the process. Sharing common resources for back office, compliance, sales trading and dealing will be a boon for brokers in a scenario where margins are already being squeezed.
Investors get a wider choice:
It would be a boon if investors and traders could have a single KYC and use a single login and password to operate all classes including equities, derivatives and commodities. Customers will also have the advantage of acting on trading ideas in a broader spectrum of ways. For example; a call to buy gold can be executed either by buying gold futures, buying gold ETFs, or by buying a stock like Titan in the spot or futures market. For investors it opens up a plethora of permutations and combinations to participate in the market.
In a way, the decision to merge FMC with SEBI is a step in the right direction. Notwithstanding the teething troubles that this proposal may face, the brokers and investors will substantially benefit from having a single super-regulator for capital markets.