Brokers shy away from ICEX membership

Traders and brokers seem cautious about taking membership in Indian Commodity Exchange (ICEX), the fourth commodity futures exchange, promoted by Indiabulls Financial Services and public sector MMTC.

Many apprehend that a conflict of interest could emerge due to the promoters’ active involvement in commodity trading on existing platforms. As announced earlier, ICEX is planning to go live by the end of November.

At least half a dozen traders who are actively trading in agri and non-agri commodities on existing commodity exchanges said they were waiting to check any inter-exchange arbitrage opportunity on ICEX. ICEX is reported to have enrolled a little less than 100 members so far, a tenth of the membership of existing exchanges.

According to sources, Indiabulls has a commodity broking arm, Indiabulls Commodity, which has been trading on the Multi Commodity Exchange (MCX), National Commodity & Derivatives Exchange (NCDEX) and National Multi Commodity Exchange (NMCE).

When asked, a spokesperson for the Forward Markets Commission (FMC), the regulator, said promoters cannot trade on their own exchange. Section 5.2 of the Forward Contract (Regulation) Act says, “The proposed Exchange shall have a demutualised structure, ie, the shareholders of the Exchange shall not have any trading interest either as a trading member or client at the Exchange.”

Ajit Mittal, CEO of ICEX, declined to comment on the issue.

Apparently, an exchange is privy to confidential information, client IDs, details of trade and position of members. This information, if known, to other members/market participants can be used to make unfair gains from confidential information, as well as poach clients of the member. Brokers are worried about the confidentiality of their client IDs and transactions, as the compliance office of ICEX is based out of the same office where Indiabulls’ broking arm is located.

The broking community across asset classes is supposed to fully trust the system to avoid any leak of information on their top-performing clients, as well as positions taken and trades executed. This information is sensitive and can upset their business or trading calls.

“An exchange has to be neutral so that such sensitive information cannot be used for vested interest. World over, there is no case of one broking arm promoting an exchange. There have been instances where a group of brokers have come together to set up an exchange but a broker-led exchange challenges the very fundamentals of a marketplace,” said a broker, on condition of anonymity.