'Capping SE stake in commexes will curb conflict of interests'

The Forward Markets Commission's move to cap the shareholding by a stock exchange in any national-level commodity bourse at 5 per cent is seen as an attempt to ward off any potential conflict of interests between the two.

A senior official in the Consumer Affairs Ministry, under which the FMC functions, said: "The shareholding norms for stock exchanges have been tightened to reduce their influence in the functioning of the commodity exchanges."

Sources said the sudden move by the regulator FMC is aimed at curtailing the National Stock Exchange's "undue" influence on the management of the NCDEX board.

According to the modified shareholding norms released by the FMC for national commodity exchanges (NCE) which have completed five years of operation, "The shareholding by any single stock exchange shall not be more than five per cent of the subscribed and paid-up equity capital of the NCE."
    
"No single stock exchange can become a strategic investor (and) the combined stake of all stock exchanges can maximum be at 10 per cent in any NCE," the FMC said.
    
At present, NSE has a 15 per cent stake in NCDEX, the country's second biggest commodity bourse. As a result of the new rules, it has to bring down its stake to 5 per cent by December 31.
    
The ministry official said: "Amendments were made to restrain NSE from having undue influence on the management of the NCDEX board, as the former may use the NCDEX platform to create unhealthy competition with rival bourses."
    
The move is an attempt to avoid conflict of interests between the stock exchange and commodity exchange, he added.
    
Already, there is a rivalry between NSE and Financial Technologies India Ltd (FTIL), the promoters of MCX-SX, in currency futures trade, the equity segment and others.
    
Mumbai-based NCDEX and MCX and Ahmedabad-based NMCE have completed five years of operations since commodity futures were reintroduced in 2003.
    
NCDEX Corporate Service Head Ananda Kumar said, "At present, we have not taken any view on NSE. However, the board will soon take a call."
    
Besides stock exchanges, the FMC has clearly defined the shareholding norms for commodity bourses. It said that any single commodity exchange cannot hold more than 15 per cent stake in a rival NCE. The combined stake of stock and commodity exchanges cannot exceed 20 per cent in an NCE, it added.
    
The modified norms will be applicable to both existing as well as for new commodity exchanges.