The government, as an interim measure, may hand over the regulation of spot exchanges to stock market regulator Securities and Exchange Board of India (Sebi) in the aftermath of the controversy surrounding the National Spot Exchange.
In a sense, the government may move to the pre-2004 period, when the Wajahat Habibullah committee had recommended putting commodity exchanges under Sebi on the premise that the products being offered on various spot exchanges were really complex financial products.
A senior government official told FE that internal discussions within the government have already begun to revive a proposal for handing over the regulation of spot exchanges to Sebi till the time the new financial sector regulatory set up recommended by the Financial Sector Legislative Reforms Commission (FSLRC) is put in place. He added the proposal to bring in Sebi would require cabinet clearance, which was likely to be taken in due course.
While Habibullah was then consumer affairs secretary, the consumer affairs ministry later opposed the move and, instead, opted to strengthen the commodity futures regulator Forward Markets Commission (FMC) — the move to merge FMC with Sebi was put on the back burner.
Were such a move to be made, doing so will take some time since spot exchanges are a state subject under the Constitution. So, as in case of APMC Acts which are also state subjects and the Centre has given incentives to states to move towards a central model Act, this is not possible without the states agreeing to it.
The FSLRC has suggested subsuming of all financial sector regulators except RBI into one umbrella regulator for the financial sector. If the government decides to hand over the regulation of spot exchanges now to the Sebi, this would just be a step towards the FSLRC suggested framework.
