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FinMin proposes to empower FMC to regulate brokers

The Union finance ministry has proposed giving additional powers to the Forward Markets Commission (FMC) to regulate intermediaries, including members (brokers and clearing members) and warehouse service providers recognised by commodity derivatives exchanges.

So far, intermediaries were regulated through exchanges, as the Forward Contracts (Regulation) Act didn’t empower the FMC for this.

On Wednesday, the finance ministry introduced the Forward Contracts (Regulation) (Intermediaries) Draft Rules, 2014, to empower the FMC to regulate intermediaries. It also sought comment from the public in this regard within 21 days.

“The finance ministry is in the process of strengthening the regulatory framework of the commodity derivatives market for some time. As part of this, FMC is being empowered further. Accordingly, a need was felt to strengthen the regulatory framework by empowering the FMC to effectively regulate intermediaries in the commodity derivatives market. Therefore, it has been decided to notify appropriate rules by the central government,” the ministry said.

Experts say the proposal to provide greater powers to the FMC is a step towards making it an independent regulator.

Under the new guidelines, FMC will register a person interested in acting as an intermediary. Those not registered yet will have to be registered within three months. The regulator will also be able to levy registration fees on intermediaries.

FMC has also been empowered to specify norms and procedures. The directives, clarifications and guidelines it issues will be binding on intermediaries and those associated with the commodity derivatives market.

“So far, there were no guidelines for intermediaries in the commodity derivatives markets. All existing members and recognised warehouses and warehouse service providers will come under the purview of the new guidelines,” said Naveen Mathur, associate director (commodities & currencies), Angel Broking.

Under the new guidelines, every intermediary will have to comply with obligations and responsibilities, including the code of conduct, as specified by FMC. They will also have to maintain and present to the regulator books of accounts, documents and records, as specified.

Also, every intermediary will have to appoint a compliance officer and another officer, as specified by FMC, to ensure compliance with statutory requirements. The Securities and Exchange Board of India, the securities market regulator, has had these powers for long.

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