FMC restricts exchanges' flexibility on transaction rates

Commodity futures exchanges will have lesser flexibility to fix differential transaction charges as per the revised guidelines by the commodity futures regulator, the Forward Market Commission (FMC).

In the revised guidelines, FMC has said that no exchange can fix the differential transaction charges based on the different time zone and different commodities.

The regulator has revised the guidelines in wake of the National Commodities & Derivative Exchange’s (NCDEX) proposal to reduce transaction charges from Rs 3 a lakh to 5 paisa a lakh for transaction in the evening session. This proposal, however, was dismissed by the regulator.

The new norms mean that the exchanges cannot have one charge for one set of commodities and different for another set of commodities. Similarly different charges for different time zone would also not be permitted.

Earlier, the regulator has revised guidelines to fix a range in which the higher turnover-related relaxation in transaction charges was allowed.

Exchanges have reduced transaction charges as the turnover of the members increases to improve volumes and thereby, liquidity in the market. Higher liquidity is the key for hedgers to become active in the commodity futures.

FMC had said that while transaction charges can be reduced if the volume increases, the gap between lower charges and higher charges should not be more than four times.

This was based on the complaints received from small members that since their volumes are lower, they stand at a disadvantage when exchanges reduce charges for higher volumes.

Hence, the regulator fixed the floor for reducing the charges.