FMC warns members not to offer portfolio management services

Portfolio Management Services, a customized investment planning of wealthy investors, was banned by FMC on December 4, 2006

The Forward Markets Commission (FMC), the commodity derivatives markets regulator, has warned members of commodity exchanges against portfolio management services (PMS), or any other offer of assured periodical returns.

“Any member identified as having indulged in offering PMS will be liable to strict disciplinary actions like suspension from membership and deactivation of his terminal. The exchange may prescribe a deterrent monetary fine in this regard.” PMS, a customised investment planning for wealthy investors, was banned by the FMC on December 4, 2006. Two weeks later on December 16, it clarified the ban was in relation to fund-management activities only.

Acting on complaints from a section of traders, FMC directed exchanges to take strict action against members guilty of offering PMS to clients four years later, on June 24, 2010. “We have got complaints again that some members of national commodity exchanges offer PMS activities in a large number of commodity futures markets, putting several small investors’ money at tremendous risk,” confirmed an official.

FMC has banned client services with assured periodic returns, learning a lesson from the debacle of the National Spot Exchange that offered such returns and ended with a huge payment crisis. Any activity without executing a member-client pact with the client and without presenting a client with a risk disclosure file and taking proper orders from the client for managing his accounts/executing trade, etc, was banned. It is observed members had highlighted only the profit part in advertisement or publicity material in this regard, without emphasising the risk factors. “We have banned such ads,” the official said. The FMC is, however, silent on publicity material with proper highlights on pros and cons of such investments.