Decision likely soon on spot exchanges' regulator

Options with the govt are FMC or WDRA; no plan to close NSEL

As the government grapples to find a way out of the mess surrounding the National Spot Exchange Ltd (NSEL), the issue of who is to regulate such exchanges has come to the fore.

According to officials in the Department of Consumer Affairs (DCA), their ministry is working on this, ahead of the formal framing of a separate Spot Exchange Regulation Act. Either the commodities market regulator, the Forward Markets Commission (FMC), or the Warehousing Development Regulatory Authority (WDRA) could be entrusted with the job in the next few days. DCA is the parent agency for both these bodies.

“Someone has to take the responsibility; else, these exchanges will close down, which is not the right way and such a proposal doesn’t exist on the government’s agenda,” a senior official said.

However, the method through which the powers will be entrusted is to be decided. There is also no global model to regulate nationwide spot exchanges. In most developed markets, there are reporting agencies for spot markets and generally deals took place on the over-the-counter market. India has 7,500 mandis, of which 630 are larger and district-level ones. It is only in recent years that nationwide spot exchanges have come up. There are three at present. Apart from NSEL, there is the NCDEX Spot, set up by the National Commodities and Derivatives Exchange and R-Next, set up by the Reliance Capital. Another spot exchange, the National APMC, set up by the promoter of the National Muli-Commodity Exchange of India, is defunct.

The government has with it a proposal from FMC on regulating the spot exchanges. However, this requires enactment of a law, which is time consuming. Notifying FMC as a regulator for these exchanges is under active consideration but would be an interim measure and it has to be legally tenable. So far, DCA has believed the FMC should do the job; on the other hand, the WDRA already has the backing of an Act passed by Parliament and has already issued a draft regulation for these exchanges. Headquartered in this city, it has about 350 warehouses across the country registered with it.

Officials said WDRA had, some time earlier, asked the DCA to allow it to regulate spot exchanges, as a natural integration from a mandi. “We believe that an integrated system works better. When we issue negotiable warehouse receipts we ensure that the quality and quantity of the stocks is as promised. Also, it (giving us the regulatory power) would ensure that warehouses of spot exchanges are registered with us,” Dinesh Rai, chairman of WDRA, told Business Standard.

Another official in WDRA also said the fiasco surrounding NSEL would not have happened if the warehouses were registered with WDRA and it was allowed to regulate spot exchanges.