FMC plans tighter warehousing norms for comexes

FMC and Warehouse Regulatory and Development Authority decided to revamp earlier regime for warehouse providers after NSEL fiasco

The commodities market regulator, Forward Markets Commission (FMC), is expected to soon issue tighter norms for warehouses recognised by commodity exchanges. Sources said these new norms could be announced in a week.

FMC is coming out with additional norms to help the warehouses manage delivery-related risk.

“Once the norms are notified, market participants will be given about six months to comply,” said a senior FMC official.

FMC and the Warehouse Regulatory and Development Authority decided to revamp the earlier regime for warehouse providers after the National Spot Exchange fiasco. Various investigative agencies noted the warehouses in question lacked the commodities being traded and rules on storage were violated.

FMC had in August floated a discussion paper on uniform criteria for all warehouse service providers (WSPs). “There is no uniformity in the norms among nationwide multi commodity exchanges for accreditation of WSPs,” said FMC in the draft regulations.

According to people in the know, warehouses will now need to have at least three years experience and a net worth which earlier was proposed at Rs 10 crore and is now being increased. It will be higher for those providing services to recognised commodity exchanges. Warehouses would also need to be a corporate body, with annual financial audits.

“Traders in the new regime will be able to conduct examination of commodities kept in the warehouse, under the supervision of the exchange,” said a senior FMC official.

FMC would mandate that WSPs set up committees to oversee the functioning of warehouses. The NSEL crisis also highlighted the importance of insurance for commodities. The new norms will make it mandatory for warehouses to have this, preferably from state-owned general insurance companies.

“A warehouse should fully insure the value of goods,” said a source.

Additionally, a WSP will have to provide for security deposits for the goods stored — two per cent security for Rs 250 crore and less, three per cent for Rs 250-500 crore and five per cent for Rs 500 crore and above. The security deposits can be in the form of bank guarantees, from approved lenders, fixed deposit receipts, cash or liquid deposits.