Brokers' default? Commodity investors have to be repaid

In an important development, giving comfort to investors and traders in the commodity futures market that their money is safe, two leading exchanges will soon start giving money back to investors that was held up in the case of a broker’s default a year ago.

A year ago, a member of MCX and NCDEX, Bhavishya Advisory and Comtrade Pvt Ltd, had been declared a defaulter. His clients also lost money. Since the commodity market regulator, Forward Markets Commission (FMC), had initiated an investors’ protection fund, it will be now possible to make payment to investors who have lost money due to the broker’s default.

Officials of both exchanges confirmed this and said at present, arbitration awards were being given, after which payments would be made to investors.

While this might be the first such case, that is not the only thing FMC did in the interest of investors or clients trading on the exchanges.

FMC officials said exchanges have been asked to create proper settlement and guarantee funds, on the lines of investor protection funds and start putting money being collected in normal course of trading for the purpose.

At present, whatever a collateral member-broker of a commodity exchange provides are considered margins for his exposure. In case of default, nothing is left to pay for losses incurred by clients. Ramesh Abhishek, chairman of FMC, said: “We are finalising new capital adequacy norms for members of exchanges, where a part of the capital will not be considered for his (a member) margins for exposure. This base minimum capital will have to be kept with the exchanges in cash and fixed deposits and will be refundable in case of termination of membership.”

FMC has also asked the exchanges to strictly implement the system of sending text /email alerts regarding trade conducted in their account by members on a daily bases. As this is being implemented, several cases came to light when a client was not aware of trades taking placing in his account.