The first step towards integration of both equities and commodities markets has been taken by market watchdog, Securities Exchange Board of India (Sebi). The latest Sebi notification issued on Thursday has allowed brokers and other intermediaries to operate under one roof and a unified licence. Brokers hitherto operating through two separate entities to trade in equities and commodities can now merge their operations into one entity. This will not just make doing business easier, but also allow investors to make their investments in different products through one broker without having to approach multiple relationship managers. Given that the Forwards Market Commission (FMC) has become part of Sebi, it makes sense to give unified trading licences to brokers for dealing with equities, debt instruments and commodities. For example, market intermediaries can now offer equity derivatives, currency and commodity derivatives through one brokerage and a unified investor’s account. Similarly, investors with margins in the equity segment could now be leveraged to trade in commodities.
Allowing major stock exchanges like NSE and BSE to trade in commodities on the same platform would be the logical extension towards market integration. Similarly, allowing commodities exchanges like MCX and NCDEX to trade in equities and debt instruments would not be a bad idea to foster competition that may also lead to deepening the reach of markets. Finally, having one regulator for all financial services is an idea that has been discussed for ages. A single regulator can eliminate turf wars hitherto experienced between insurance regulator Irdai, pensions regulator PFRDA and Sebi in dealing with ULIPs or pension products that have underlying equity and investment components. Bringing all market and financial services, under one regulator, was actively considered during the UPA-I and UPA-II when P Chidambaram and Pranab Mukherjee were finance ministers. The Financial Services Legislative Regulatory Commission (FSLRC) had mooted the idea of a super regulator. This was to be modeled on the lines of Financial Services Authority (FSA) of United Kingdom.
While different models have worked internationally, India may have to evolve its own framework for markets and financial services. Having well equipped institutions and trained manpower will go a long way in orderly development, transparency and protecting the small investors’ interests. Seamless transactions coupled with settlements without payment problems should be the priority. Given the technological tools and platforms that could bring about convergence in the prevailing unique market conditions, India can explore the possibility of setting up a panel of regulators as a supra-body for orderly development and monitoring of sector-specific markets. If GST could transform India into one market for products and services overnight, why not have a single market for all financial services?