Comex boards to be strengthened

Boards will be asked to improve corporate governance

Following the payment crisis at National Spot Exchange Ltd (NSEL), commodity markets regulator Forward Markets Commission (FMC) is considering strengthening the boards of commodity exchanges and improving the flow of information to the boards.

After the crisis at NSEL came to light, the exchange's board had said the management had kept it in the dark about the fraud. To ensure other commodity exchanges don’t face similar circumstances, FMC would soon issue directives to all the bourses, including the Financial Technologies-promoted MCX, in this regard.

All major expenditures would have to be approved by the boards. Also, these have to be regularly informed about risk management, margins, regulatory communications to the exchange, etc. Information on the exchange's infrastructure and the appointments of key management personnel might also need board approval.

FMC has already asked these exchanges to reserve half the board seats for independent directors. The seats of anchor investors would be proportionate to their shareholding. In the case of MCX, for instance, if the board size is 14 (as in the past), the anchor investor (Financial Technologies) would have only one director. The posts of managing director and chief executive have been kept out of these calculations.

In the case of NSEL, FMC is considering issuing a show-cause notice to the promoter and the board, asking why their 'fit and proper' status to run the exchange should not be withdrawn. Financial Technologies, however, said the board was misled.

FMC has asked NSEL to submit minutes of the board meetings, as well as compliance reports sent to the board every quarter.

The 'fit and proper' status for running an exchange is crucial. In case promoters are declared unfit, they have to exit the business. In the case of NSEL, the promoter (Financial Technologies) would have to exit other exchanges, including MCX and MCX-SX, if the fit and proper status is withdrawn. The Securities and Exchange Board of India has already informed MCX-SX "any adverse findings by any other regulator may result in withdrawal of recognition of the exchange".

Meanwhile, investors seeking delivery of gold and silver or financial settlements of NSEL e-series contracts would have to wait till Monday, as the Bombay High Court on Friday extended the stay on its pay-out till October 7.