FMC may give institutional investors more power in comex operations

The Forward Markets Commission (FMC), the commodity markets regulator, is planning to institutionalise the operations of commodity futures exchanges in the country. FMC has called a meeting of all the institutional investors having one per cent or more equity holding in the commodity exchanges on Tuesday.

In this connection, the regulator on Wednesday wrote to all the six commodity exchanges to provide a list of institutional investors and to inform the latter about the meeting. While the FMC's communication to the exchanges doesn't give more details, an FMC source said the exchanges were public companies and their operations needed better vigil.

Last week, the FMC had asked all bourses to ensure half the board directors be from institutional investors.

In the meeting with investors, the regulator could discuss its vision about functioning of the exchanges and how their operations should be supervised, sources said. These investors could be given more powers on supervising capital expenditure, key appointments and other sensitive functions of the exchanges.

FMC is also understood to have learnt a lesson from the National Spot Exchange Limited (NSEL) crisis involving management-level fraud of Rs 5,572 crore.

According to FMC, the definition of institutional investors includes government companies as defined in the Companies Act 1956, banks and public financial institutions, co-operative societies as defined in the Societies Act and Federations manufacturing or marketing agri-inputs or marketing agri-produce or owning and operating warehouses. Warehousing companies in the private sector having minimum five years' standing in warehousing business and owning and operating warehouses in at least two states also come under this category. Plus, stock exchange and commodity exchanges have also been defined as institutional investors.

Institutional investors in MCX, the largest and the only listed exchange, had met the FMC in the past to understand the impact of the measures the regulator was planning after the NSEL fiasco. These investors had said they would also ensure whether the exchange follows proper collateral management and other risk management policies and proper corporate governance norms are followed or not.

The complaint also alleges a massive conspiracy by the accused and violations of the Indian Penal Code (IPC) involving criminal breach of trust, forgery, criminal mis-appropriation of assets, cheating (sections 406, 407, 409, 417, 420, 424, 465, 467, 468, 471 r/w 120B of the IPC). These offences are of utmost seriousness inviting seven years' rigorous imprisonment if proven.

Investors are hopeful the complaint makes a strong case for every enforcement authority including the Central Bureau of Investigation, Serious Fraud Investigation Office and the Enforcement Directorate to take effective action.

The complaint expresses apprehension that NSEL and Jignesh Shah may destroy evidence and alter records of NSEL and, hence, immediate steps must be taken to preserve records so that the guilty can be brought to book. There is also a concern that Jignesh Shah may escape from India.