Commodity derivatives: Sebi finalising stricter warehousing rules

An exchange-accredited warehouse service provider shall have at least Rs 10 cr in subscribed share capital

The Securities and Exchange Board of India (Sebi) is to finalise stricter regulations for warehouse service providers (WSPs) that are recognised by commodity exchanges (comexes), especially for storing goods meant for selling on the exchange platforms. This will be very significant for trading in agricultural commodities.

Sebi has asked its Commodity Derivatves Advisory Committee to give its views and a meeting this month will discuss the new regulations. Sebi will be assigning the responsibility of settlement of futures contracts to commodity derivatives exchanges.

WSPs are recognised by the exchanges but their net worth eligibility is being increased to Rs 50 crore and a separate recognition is required for a warehouse of the recognised service provider. A proposal also being discussed to keep net worth in sync with the value of goods stored on behalf of exchanges.

Each delivery centre in each commodity shall have at least one exchange-recognised warehouse nearby. While one WSP can be recognised by more than one exchange, there is also a debate on whether a recognised individual warehouse can keep goods from clients on behalf of two comexes. Sharing of WSPs are acceptable to the exchanges but views differ on sharing of individual warehouses. A warehouse recognised by an exchange might still be allowed to store goods on behalf of clients who are not participating on the exchange but exchange-goods and other goods shall be stored separately -- WSPs have to record the quality when the commodity was deposited and delivered.

The overall aim is to ensure good delivery on the exchange platform; in several past cases, deliveries were not up to the standard. The Warehouse Development Regulatory Authority (WDRA) has also undertaken an exercise to tighten norms for those registered with it; however, it is not mandatory to get registered with WDRA.

Because delivery in agri commodities has been a serious issue, and most deliveries are happening on exchanges in agri segment, Sebi has undertaken an exercise to tighten the regulatory norms for warehouses. The agri-centric National Commodity and Derivatives Exchange recently introduced tagging to the commodity bags stored in its recognised warehouse.

Sebi had proposed that a WSP accredited by it have own warehouses. If using third-party warehouses, the number of these used by a WSP was not to exceed 50 per cent. This had generated controversy, as many were using leased warehouses.

Sebi proposals

* An exchange-accredited WSP shall have at least Rs 10 crore in subscribed share capital

* A WSP providing services to a single exchange shall have a minimum net worth of Rs 50 crore for multi-commodities or multi location and of Rs 25 crore for a single commodity or location

* Net worth might also be linked with the value of goods stored.

* In a WSP servicing multiple exchanges, the net worth requirements shall be increased by the number of exchanges serviced

*The WSP shall furnish additional a security deposit which will increase when the value of stored commodities increases. The proposed deposit is three per cent up to Rs 250 crore worth of goods and five per cent on the aggregate value of stored commodities if the goods value is above Rs 500 crore

* An exchange shall ensure the WSP, its promoters, assayers, key management personnel and warehouses shall always be 'fit and proper' to carry out the business

* A WSP should comply with the Know Your Depositor (KYD) policy as prescribed by an exchange from time to time. The exchange and WSP shall at any point of time be able to identify the depositor/ owner of the goods deposited/to be deposited in registered warehouses, the owner of the commodity (in case the depositor is an agent of the actual owner), and the beneficiary (in case the depositor and the beneficiary are different) of the deposited/stored commodities

* WSP has to also provide PAN numbers of all the above persons and those acting in concert

* Exchange-accredited WSPs shall be registered with the Warehousing Development Regulatory Authority. If not, this must be done within six months.