The Forward Markets Commission (FMC) has planned a slew of measures for smoother, more secure and transparent trading on commodity exchanges and to attract hedgers’ direct participation.
It is introducing exch-ange–generated SMS and email alerts for every transaction put through by a member for clients.
“We have asked commodity exchanges to develop the software in such a way that the system automatically sends alerts immediately after execution of orders. The commodity exchanges have also supported the move. The system will be ready to introduce on May 1 this year,” said Ramesh Abhishek, chairman, FMC.
- New code of conduct for auditors, the Commission and the broking firms associated with commodity futures trading
- Quarterly settlement of account to avoid complaints older than three months
- Utilising the interest on deposits in the Investor Protection Fund for awareness programmes and advertisement campaigns
- Exposure-free deposits with exchange to use fund in case of default
Currently, a few brokerages of both commodity and equity markets have adopted a practice to send a manual email alert for transactions out through on exchange platforms.
However, this is not mandatory. The alerts will be self-explanatory and contain all details of transactions, including quantity, price, overall cost and execution date and time. This system is already in place at some major banks, where SMS/email alerts are sent when any transaction happens.
The regulator is also planning to introduce a ‘code of conduct’ for auditors of exchanges, the Commission and the broking firms associated with commodity futures trading. Under the code, an auditor who has checked the books of account of either the exchange or a member will be barred from auditing the account of another entity in the value chain for three years. “The purpose of this code of conduct is to avoid conflict of interest between a broker and an exchange,” said Abhishek.
FMC is also working to introduce a quarterly settlement system, in line with equity markets. Under this system, a member will settle a client's account every quarter-end and make payment for credits the client is having or ensure the client pays all debits.
This does not mean the client needs to close all positions before the quarter-end. He can keep positions open in contracts of his choice. But, while doing so, he would have to clear all payment dues, including mark to market (M2M) ones, before the end of every quarter. “This will make action smooth and immediate on complaints, as no such complaints would be older than three months,” he added.
However, the commodity derivatives market watchdog plans to allow members to keep an amount equivalent to three circuits to settle M2M loss, so that members and clients can settle the margin differences without any hesitation.
The FMC is also exploring the possibility of utilising the interest on deposits in the Investor Protection Fund with exchanges, for overall market development. It might use these for awareness programmes and advertisement campaigns, as suggested by the Parliamentary panel examining the Bill to give it new statutory powers, to also attract participation of genuine hedgers. At present, this activity is very low in comparison with speculation.
Also under consideration are exposure–free minimum deposits for members. Today, the minimum deposit for a member is Rs 30 lakh on the Multi Commodity Exchange and Rs 15 lakh on the National Commodity & Derivatives Exchange. Members, however, get full exposure for trade on these deposits. In case members want additional exposure limit, they are required to deposit five per cent of the desired amount in advance.