Govt withdraws exemptions to spot exchanges for one-day forward contracts

A Gazette Notification dated Sept 19 was made public on Oct 29 in the regard

The government on Wednesday withdrew exemption granted to spot commodity exchanges for launching one day forward contract in both agri and non -agri segments.

Through a Gazette Notification dated September 19 made public on October 29, the government said that the exemptions granted to three national spot exchanges - National Spot Exchanges Ltd (NSEL), NCDEX Spot Exchange Ltd (NSPOT) and National Agriculture Produce Marketing Company of India Ltd. (National APMC) with immediate effect.

With aim to launch one day forward contracts, the government had granted the three exchanges exemption under section 27 of the Forward Contract (Regulation) Act 1952 (FCRA) with a caution of withdrawal in case of indulging into short shelling and any other wrong doings.

While Financial Technologies (India) promoted NSEL was granted exemption on June 5, 2007, NSPOT and National APMC received exemptions under the same provisions on July 23, 2008 and August 11, 2010 respectively.

While NSPOT (later changed name to NCDEX e Markets Ltd) is promoted by the National Commodity & Derivatives Exchange (NCDEX), Ahmedabad-based National Multi Commodity Exchange (NMCE) promoter Neptune Overseas pioneered National APMC.

"Having examined the activities of the such entities and on the basis of the experience gained, the central government is of the view that such entities which were granted exemption under section 27 of the said Act, thereby facilitating unregulated forward trading on their platform, have failed to serve the purpose for which they were created."

And the government is of the considered opinion that in view of various risks associated with trading in such unregulated entities in areas of monitoring and surveillance, risk management and settlement systems, corporate governance, equity structure, warehousing, conflicts, etc., the forward trading in such unregulated entities is not in public interest, the notification said and added, "It is therefore, the central government hereby withdraws the said exemption granted to the three exchange and rescinds the respective notifications with immediate effect."

Faced with Rs 5600 crore payment crisis, NSEL discontinued all contracts on July 30, 2013, the other two exchanges got the exemption but, never used it.

According to trade sources, therefore, the withdrawal of exemption is unlikely to affect any exchange or its members. But, corporate seeking exemptions to introduce one-day forward contract under Section 27 of FCRA would face hardships in future.

"NCDEX Spot is not using the exemption. We had written to the government in October last year for its withdrawal which has been effected now. It would not affect our business. We would continue with our spot market model and modernize spot commodities market in India using the principles of efficient markets. We would continue to work closely with our esteemed customers and provide them with an efficient, transparent, online trading platform and services," said Rajesh Kumar Sinha, Head, NCDEX Spot.

Neptune Overseas could not be immediately reached as a person privy to the company said, "There is no one who can respond to your call. National APMC got exemption but, never used it."