Comexes agree to FMC proposal on transparent fund transfer

To give feedback on new Investor Protection Fund rules.

Commodity derivatives exchanges have agreed to instruct all their members not to accept any demand draft of more than Rs 20,000 from a client unless it is accompanied by a supporting letter from the bank.

The suggestion came from the Forward Markets Commission (FMC), the regulator of these exchanges, and was discussed at a meeting on Tuesday. The exchanges have agreed to issue a circular to this effect.

The aim is to control the transfer of funds from unregistered clients to members’ accounts. “The objective is to create transparency in the commodity futures trade. This (step) will help locate the source of funds easily,” said an official who participated in the meeting.

Besides, the FMC has granted two weeks to evaluate the pros and cons of its proposed structure for the Investor Protection Fund (IPF), following which it would frame a policy. It had proposed the appointment of five trustees for managing the IPF, of which one would be of its own nominee. It is also mulling a uniform Rs 2 lakh per claim to be collected from a client in case of default, to be deposited in the IPF account.

The IPF is meant to protect the interests of clients of trading members of the exchange, whom the latter may have declared as defaulters or expelled. Currently, there is a varying penalty and the sum is kept with the exchange concerned, to settle the member’s account.

FMC plans to widen the scope of the IPF, to use as a dispute resolution mechanism. On arriving at a consensus, it will issue a comprehensive set of rules.

High frequency or algorithmic trading in commodity futures is another area where FMC plans to discuss with exchanges and arrive at a consensus.

On FMC’s proposal for a report on the lines of the Commodity Futures Trading Commission (CFTC), an independent agency of the American government that regulates the futures and option markets, the exchanges say the markets are not ready for such a step. CFTC comes out with a daily report providing information on all participants.

“CFTC has members of all types of participants, including banks, mutual funds, foreign institutional investors and large corporates, that are absent from the Indian exchanges. Hence, preparing such reports makes no logical sense,” said the official.