Earlier, the Sebon had prepared the draft of a regulation to regulate and monitor activities of commodities and derivatives exchanges by stepping on the Administrative Procedure (Regulation) Act 1956. The draft was tabled at the Ministry of Finance in September and was later forwarded to the law ministry seeking approval.[break]
After reviewing the document, the law ministry has said a law to regulate commodities and derivatives markets cannot be introduced by referring to the Act as it does not allow creation of a separate legal entity to regulate and monitor an entirely new market for the country.
“We laid the recommendation as the administrative procedure act solely gives the mandate to regulate administrative matters and matters related to finance, accounts and auditing. Since Sebon´s proposal did not fall in this domain, we had to flag red signal,” Tek Prasad Dhungana, spokesperson of the Ministry of Law and Justice, told Republica.
In case the law ministry had failed to bar the Sebon from moving ahead and allowed it to introduce the regulation, there would have been high chances of someone moving the court requesting annulment of the law, Dhungana said. “In such circumstance, Sebon could have even lost the case, as the regulation would have been standing on weak legal ground,” he informed.
The Sebon had drafted the regulation after its survey found that commodities and derivatives exchanges operating in the country were playing with billions of rupees of public´s money without monitoring and supervision of government agencies. What alarmed the securities market regulator the most was revelation that these exchanges were conducting business in an unprofessional and ad-hoc manner, without adopting minimum international standards to minimize risks and protect the interest of investors.
For instance, around half a dozen exchanges currently operational in the country did not have adequate capital, enough reserves to ensure timely payment and electronic system to match orders, the survey conducted by the Sebon revealed.
To protect people´s money, the Sebon had proposed establishment of a directorate under it with mandate to issue operating licenses to commodities and derivatives exchanges, take action in case of non-compliance, and supervise, monitor and regulate their activities.
“Although the red flag shown by the law ministry has prevented the Sebon from introducing the regulation for now, it can always use the Essential Commodities Control Act 1961 as a platform to introduce a legal document to monitor and regulate commodities and derivatives markets,” Dhungana said. “This can work as a stopgap measure until a separate act to govern the sector is introduced.”
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