FMC asks First Commodity Exchange to resolve issues

The Forward Markets Commission (FMC), the commodity derivatives market regulator, has asked Kochi-based First Commodity Exchange of India (FCEI) to sort out all differences with it before any further extension of the exchange’s registration.

Confirming the regulator’s willingness, T Vidyasagar, the newly appointed chairman of the exchange, said, “We applied afresh for extension of our registration, last week. We are meeting the regulator next week to discuss the ongoing issues with them. We are confident to arrive at a meaningful solution.”

Set up in 2000 by Cochin Oil Merchants Association (COMA) and First Commodity Clearing Corporation of India Ltd (FCCCI), FCEI facilitates futures trading in coconut oil and copra (raw coconut), with around 50 south-centric members. While copra futures have remained illiquid for quite some time, the uncertainty regarding the exchange’s registration is seeing traders lose interest in coconut oil futures, too. If this issue is resolved, FCEI could see renewed interest from coconut oil traders, since futures trading in this commodity is not available on any other platform and traders would, naturally, seek to hedge their risks in this highly price-sensitive commodity.

The exchange commenced trading in coconut oil, oilcake and copra in 2001. The FMC granted registration to the exchange in March, initially for five years, which was later extended periodically. The latest extension, for a period of two months, was granted in February. It expires on May 31.

The controversy, according to an exchange official, erupted about half a decade ago when certain irregularities were reportedly discovered by the regulator on the exchange platform. One irregularity related to collection of nomination fee (Rs 500 from every director, which the exchange failed to collect) from the two existing directors on the board - A Hanifa and Nizam K K. Therefore, the markets regulator appointed two nominees on the board. These names, however, were rejected by the then board members. Apparently, the regulator’s order mandated resignation of A Hanifa and Nizam K K, which they challenged in the Kerala high court. Although the matter continues to be sub judice, the regulator wants the exchange to resolve this issue before extending the registration.

The two directors are no longer on the board.

Meanwhile, traders have lost interest in operating on the exchange. From being a multi commodity exchange, FCEI has been reduced to a single commodity, coconut oil, in which some traders have found interest in price discovery. According to the FMC website, the turnover on FCEI in the April 1-15 fortnight declined to a mere Rs 27 lakh, compared to Rs 10.5 crore in the corresponding period of the previous year. In case Vidyasagar fails to convince the regulator, the exchange may lose recognition, too.