The Hindu Business Line : Convergence of markets remains non-starter

The Finance Minister, Mr P. Chidambaram, had announced in the Union Budget that steps to integrate the commodities markets and the securities markets would be initiated.

The Ministry of Consumer Affairs, Food and Public Distribution is yet to take a decision on the issue of convergence though the Ministry of Finance is known to be favouring this move.

In fact, not a single meeting has taken place between the two regulatory bodies - Forward Markets Commission (FMC) and the Securities and Exchange Board of India (SEBI) - to discuss the convergence issue.

Enquiries with the Ministry of Consumer Affairs, Food and Public Distribution revealed that the decision-making process of integration has not yet been put in motion. There are many pre-requisites that need to be put in place and the entire process could take at least three years, a high-level official at the Ministry said.

Although, the road map points to convergence, the Ministries have not yet finalised any plan how to traverse it. ``Firstly, the Union Cabinet will have to approve the plan. This will be followed by a notification on convergence following which several changes have to be made (both in law and in organisational structure). The SEBI Act as well as the laws governing FMC will have to be amended. Changes will have to be brought about in various advisory committees,'' said the official.

A report of the inter-ministerial task force on convergence of securities and commodity derivatives market had raised concerns about convergence. ``There are fears that in the large securities exchanges, there would be a certain lack of focus upon agricultural commodities and the focus would be on organising derivative trading only in commodities with close semblance to financials - bullion,'' the report had said.

Meanwhile, the commodity futures market regulator is undergoing changes. At present, the Ministry of Consumer Affairs, Food and Public Distribution is focusing on strengthening FMC. ``The Ministry is providing directions, manpower and training to strengthen the functioning of FMC,'' the official said.

The report also said that any rationale for convergence should hinge upon its capacity to ensure growth, liquidity and safety of the market as well as to improve accessibility to the public by spreading the network and reduction in transaction costs.

The Government has taken measures to revitalise the commodity market - lifting the ban on futures trading in commodities; approving new exchanges with much modern infrastructure and systems such as online trading; and removing legal hurdles to attract more participants.

``The commodity market will get further fillip if this participation is broadened to all segments of the securities market by way of convergence of the two. The intermarriage of these markets has a potential to provide growth impetus to commodity derivatives and open new avenues of business opportunities to the securities market participants thereby deepening and broadening the market,'' the report had said.

Further dwelling on the positive aspects of convergence the Task Force report said that it would speed up the development of commodity markets. It would not only facilitate economies of scale and scope, but also strengthen the commodity spot market.

More Stories on : Convergence | Commodity Exchanges | Stock Markets

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