FMC mulls uniformity in commodity trading

Amid differences in opinion among nationalised commodity exchanges, markets regulator Forward Markets Commission (FMC) is working on a system that would ensure uniformity in trading.

To begin with, the regulator has decided to introduce a common know your client (KYC) form for the five national exchanges — Multi Commodity Exchange (MCX), National Commodity & Derivatives Exchange (NCDEX), National Multi Commodity Exchange (NMCE), Indian Commodity Exchange (ICEX) and Ace Derivatives & Commodity Exchange (ACE).

“Today, all these nationalised exchanges have their own set of KYC forms which the commission is in the process of phasing out with. Instead, a uniform format will be provided to all exchanges,” a senior official of the commission said on the condition of anonymity.

“Ultimately, the exchanges have one objective — to get personal details of the clients. If a client wants membership of three exchanges then he requires to fill the details on three different forms. This, I think, is not required.”

Last year, the regulator had introduced a uniform penalty structure across all exchanges. But, members raised objections to the quantum of penalty and said it was harsh. Following requests by members, FMC is now in the process of having a re-look at it. Earlier, there was no parity because the quantum of penalty was being decided by the concerned exchange depending on the gravity of the guilt and performance of the trader on the exchange platform.

According to the official, certain penalty structures were questioned by members in several meetings with commission officials. “This problem needs to be addressed to have a unform trading system,” he added.

Members, who have lower trading volumes, demanded the introduction of uniform transaction charges because their cost of business remained higher than members with higher volumes.

Until recently, exchanges had the liberty for fixing transaction charges and it was often disproportionate – the ratio was often as high as 1:8 – and large exchanges were getting higher benefits where smaller ones were marginalised. The commission had to intervene to narrow the gap at 1:4. Although, benefits enjoyed by big exchanges continue, smaller exchanges are happy with some profits.

FMC is also mulling an option to implement a uniform position limit for members and clients, especially for agri commodities, to minimise ambiguity in trading. “It may be a good idea but not feasible at this point in time due to the unavailability of database at the common platform,” the official added.

It is very difficult to monitor trade uniformity unless the FMC, like SEBI , monitors the entire trade on centralised server at the regulator’s office. Since, each exchange differs in its position limit, it would not be practical to call upon a uniform position limit for every exchange in each commodity.

Technology is an issue for monitoring uniform client’s and member’s limit. Hence, monitoring if individual client’s trading on exchange separately is a big problem. We need to develop a specialised surveillance software for resolving this problem, said the official.