Business Standard

Commodity futures regulator to allow trading by bourse shareholders

Brokers with no say in board or management may be allowed to trade

BS Reporter  |  New Delhi 

Ramesh Abhishek

The commodity derivatives market regulator, Forward Markets Commission (FMC), is in the process of relaxing curbs to help brokers with a small shareholding in an exchange to start trading on it.

Chairman Ramesh Abhishek said at an conference here on Thursday that “the guidelines do not allow brokers with shareholdings in exchanges to trade even if these are in some other exchanges. We are in discussions with the government to change these. We feel brokers with up to two per cent or some such percentage can be allowed to trade as long, as they have no say in the management or on the board.”

In the case of Multi Commodity Exchange (MCX), at the time of its public issue, brokers with less than one per cent shares were allowed to trade on it but that was an exemption due to an Initial Public Offering (IPO).

A beneficiary of the move will be Jaypee Capital Services. Gaurav Arora-led Jaypee Capital was a major volume provider on all platforms till 2009-10, before it picked up a 22 per cent stake in National Commodity & Derivatives Exchange (NCDEX). It has now reduced stake to below two per cent and has plans to begin afresh in market making. Earlier, it was generating 10-15 per cent volumes in exchange-traded currency derivatives, National Stock Exchange (NSE) equity derivatives and MCX commodities.

Market making is difficult in the current environment. The commodity transaction tax and Reserve-Bank-imposed restrictions on currency derivatives have hit volumes in commodity futures and currency derivatives segments.

was likely to announce norms for the settlement guarantee fund and trading margins, the chief said.

FMC had announced norms for transferring funds to settlement guarantee fund, which all exchanges have implemented. Now, detailed norms regarding investment and use of funds, among others, will be announced.

FMC had discussed practical difficulties for exchanges and members in making payment for mark-to-market margins. Unlike equities, commodity derivatives trading remains open till 11.30 pm. During late trading, there is big volatility, which is common, and members have to bring additional margins first in the morning the next day. The sector expects some more time to be given.

FMC will implement the consumer protection norms prescribed by the Financial Sector Legislative Reforms Commission (FSLRC) by the next month.

“We have put up a draft circular for public comments. After considering the comments, we will finalise the norms. Clauses will be included in the agreement between the client and the member. These will be made part of the know-your-customer documents,” the FMC chief said.

FMC is taking several steps to strengthen the warehousing system, under scrutiny following the National Spot Exchange Limited episode. “We are developing a warehousing manual in collaboration with the exchanges. This will also be ready by March.” The manual will prescribe norms such as capital requirements.

Last year, FMC had asked the exchanges to use only those warehouses registered under the Warehousing Development and Regulatory Authority (WDRA). “We had given time till December. We had extended it till March. Over 300 warehouses have applied to WDRA. They are eligible to be registered.”

Pointing to some delay in registrations, he said, “We will give more time. We can’t allow the exchange and warehousing system to come to a standstill. We are addressing all these issues. We are keen that a sound system must be there."

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Commodity futures regulator to allow trading by bourse shareholders

Brokers with no say in board or management may be allowed to trade

Brokers with no say in board or management may be allowed to trade The commodity derivatives market regulator, Forward Markets Commission (FMC), is in the process of relaxing curbs to help brokers with a small shareholding in an exchange to start trading on it.

Chairman Ramesh Abhishek said at an conference here on Thursday that “the guidelines do not allow brokers with shareholdings in exchanges to trade even if these are in some other exchanges. We are in discussions with the government to change these. We feel brokers with up to two per cent or some such percentage can be allowed to trade as long, as they have no say in the management or on the board.”

In the case of Multi Commodity Exchange (MCX), at the time of its public issue, brokers with less than one per cent shares were allowed to trade on it but that was an exemption due to an Initial Public Offering (IPO).

A beneficiary of the move will be Jaypee Capital Services. Gaurav Arora-led Jaypee Capital was a major volume provider on all platforms till 2009-10, before it picked up a 22 per cent stake in National Commodity & Derivatives Exchange (NCDEX). It has now reduced stake to below two per cent and has plans to begin afresh in market making. Earlier, it was generating 10-15 per cent volumes in exchange-traded currency derivatives, National Stock Exchange (NSE) equity derivatives and MCX commodities.

Market making is difficult in the current environment. The commodity transaction tax and Reserve-Bank-imposed restrictions on currency derivatives have hit volumes in commodity futures and currency derivatives segments.

was likely to announce norms for the settlement guarantee fund and trading margins, the chief said.

FMC had announced norms for transferring funds to settlement guarantee fund, which all exchanges have implemented. Now, detailed norms regarding investment and use of funds, among others, will be announced.

FMC had discussed practical difficulties for exchanges and members in making payment for mark-to-market margins. Unlike equities, commodity derivatives trading remains open till 11.30 pm. During late trading, there is big volatility, which is common, and members have to bring additional margins first in the morning the next day. The sector expects some more time to be given.

FMC will implement the consumer protection norms prescribed by the Financial Sector Legislative Reforms Commission (FSLRC) by the next month.

“We have put up a draft circular for public comments. After considering the comments, we will finalise the norms. Clauses will be included in the agreement between the client and the member. These will be made part of the know-your-customer documents,” the FMC chief said.

FMC is taking several steps to strengthen the warehousing system, under scrutiny following the National Spot Exchange Limited episode. “We are developing a warehousing manual in collaboration with the exchanges. This will also be ready by March.” The manual will prescribe norms such as capital requirements.

Last year, FMC had asked the exchanges to use only those warehouses registered under the Warehousing Development and Regulatory Authority (WDRA). “We had given time till December. We had extended it till March. Over 300 warehouses have applied to WDRA. They are eligible to be registered.”

Pointing to some delay in registrations, he said, “We will give more time. We can’t allow the exchange and warehousing system to come to a standstill. We are addressing all these issues. We are keen that a sound system must be there."
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