FMC orders end to sub-brokers

Authorised persons okay after exchange approval; 60 days for changeover.

The Forward Markets Commission (FMC) has directed commodity exchanges to disallow sub-brokers by whatever names they currently operate. Instead, it has allowed the exchanges to appoint “authorised persons”, either an individual or an entity, to deal with clients on members’ behalf.

FMC on Thursday issued new guidelines for regulating these authorised persons. The members of the exchanges will be responsible for all the deeds of such people. These authorised persons will represent brokers/members of the exchanges to clients and all risk management and issue of contract notes, etc, will be done by the members.

“It is an important step towards client protection and will bring discipline in the market,” said FMC Chairman B C Khatua.

“Today, we appoint sub-brokers and notify exchanges. Now, we would have to submit such appointment proposals to the respective exchanges for approval. Exchanges, using their discretionary powers, can either accept or reject our proposal,” said Naveen Mathur, associate director (commodities and currencies) of Angel Broking.

FMC’s circular on Thursday said: “In order to streamline the regulation of intermediaries in the commodity futures market, commodity derivatives exchanges are directed to discontinue forthwith the system of sub-brokers. The members of national commodity exchanges will be allowed to provide access to their clients only through authorised persons.”

Exchanges have been directed to amend bye-laws and ensure smooth transition within 60 days.

On Thursday, commodity exchanges appoint sub-brokers as franchises to acquire clients in remote locations, where members cannot operate directly.

Dilip Bhatia, director of commodity broking firm Kotak Commodities Services Ltd, sees no change in functioning after the circular. “The concept is similar. In the good old days at the National Stock Exchange, we used sub-brokers to enroll clients in remote places where our access was limited. We called them franchise or business partners,” he said.

Clients enrolled by franchises are authorised by members and exchanges. The members are expected to keep deposits and margins and track all other monetary transactions.