MoF proposes single clearing platform for commodity exchange trades

At present, a trader has to pay fees for becoming a member of separate clearing platform floated by different commodity exchanges

The ministry of finance is working out a roadmap to substantially bring down the transaction cost of trading on the commodity exchanges . 

According to official sources, in line with the banking system, there is need for common clearing system of the commodity trades. This commonality of clearing of transactions   will require a common platform where multiple trades across exchanges can be settled. In the process, the traders can cut down the transaction cost by becoming the member of a single platform for clearing of trades.

At present, a trader will have to pay fees for becoming a member of  separate clearing platform floated by different commodity exchanges. This entails heavy cost, multiplicity  of trades, cross margining  etc.  Thus by having a single platform for clearing of trades , the multiplicity of fees for members can be cut down. Besides cross margining is an issue  in different commodity exchanges having different platforms for clearing. This in itself creates multiple costs as the procedure involves margining when different clearing houses clear each side of the position. 

Officials added, the proposal here is to introduce net margining where a clearing firm's margins are based on the net position where clearing of the trades are done on the basis of the remaining position after netting long positions in a contract against the short positions in the customer origin. 

However officials clarified that  the government is just be a facilitator  of the proposed clearing corporation and modalities will be worked out as to funding and set up of the corporation. 

Similarly, the government proposes to bring a commonality of operations of the commodity exchanges  without  compromising upon the different business models adopted by the commodity exchanges. These include awareness programmes  and  clearing of trades, to begin with.        

Offlate, some of the other major reforms taken by Forward Markets Commission(FMC) include mandatory registration of warehouses by bourses under the Warehousing Development Regulatory Authority (WDRA), banning exchanges from offering portfolio management services (PMS) and tightening guidelines for appointment of Board members.


However due to commodity transaction tax (CTT) and negative sentiment, the business of the commodity exchanges has been lukewarm. 

Reportedly, the negative sentiments got reflected in the business with combined turnover of all commodity exchanges estimated to fall by 30% to Rs 125 lakh crore in 2013 calendar year from nearly Rs 175 lakh crore last year. The turnover at all 21 bourses remained sluggish during the year.

 In the Budget 2008-09 too, a CTT of 0.017% (much higher than the current tax proposal) was proposed. However, due to strong apprehensions expressed by the Prime Minister’s Economic Advisory Council coupled with intense corporate lobbying, the CTT proposal was not implemented and subsequently withdrawn in the next Budget. Once again  transaction tax on the commodity futures trading was proposed under the direct tax provisions in the Union Budget 2013-14. The commodity transaction tax (CTT) would  be levied at 0.01% (Rs.10 for transaction worth Rs.1,00,000).