Geojit exits commodities trading

Move was inevitable after BNP Paribas became biggest shareholder in the firm.

Geojit Commodities, a 100 per cent subsidiary of Geojit Financial Services (GFSL), has stopped dealing in commodities since January 1 following regulatory hurdles.

GFSL had decided to exit the commodity space in May 2008 to pave the way for an open offer by its joint venture partner BNP Paribas Securities Asia after the French banker compensated it with Rs 40 crore.

Geojit’s decision to exit commodity space was unavoidable because banks and financial institutions are not allowed to participate in commodity futures under the existing Forward Contracts (Regulation) Act (FCRA), which governs the commodities futures market.

The Kochi-based commodities broking firm surrendered its memberships of the Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange (NCDEX) and the National Multi Commodity Exchange (NMCE) after completing formalities on December 26.

The broking firm, which generated a daily average turnover of Rs 250-300 crore, had offered to accommodate its 260-odd employees in its parent company GFSL in the same or different locations.

“Accommodating such a large number of employees in one location was impossible… Those who were willing to take up posts outside Kerala were transferred. However, a majority of them were back office boys, who had no knowledge of financial markets. So, we settled their services effective December 31,” a top GFSL official said.

According to the official, 236 out of the 260-odd employees resigned the company to join Geojit Comtrade, which is a newly-floated standalone commodity trading firm.

“Though the name Geojit Comtrade implies some link with Geojit Commodities, we would like to clarify that the former is an independent commodity trading company, while the latter is non-existent effective January 1,” the official said.

BNP Paribas had proposed to set up a 50:50 joint venture with GFSL to cater to foreign institutional clients in India. BNP Paribas has a 27.18 per cent stake in GFSL, which it acquired in May 2007 for a consideration of Rs 147 crore.

Around the same time, GFSL had issued convertible warrants to BNP Paribas. The warrants were to be converted into equity shares in 18 months, taking BNP Paribas’ stake in the company to 34.35 per cent and the total investment to around Rs 207 crore. BNP Paribas had proposed to invest up to $2 million in this project.