Manage risk better: Commex investors

Demand improvement in risk and collateral management practices at these bourses

Amid the payment crisis at National Spot Exchange Ltd (NSEL), institutional investors in commodity exchanges are demanding an improvement in risk- and collateral-management practices at these bourses.

Public sector banks such as Union Bank of India and Bank of India, as well as financial institutions such as National Bank for Agriculture and Rural Development (Nabard) and Industrial Finance Corporation of India, have now put in seed capital in the commodities space, as have the promoters of such exchanges.

A few chief executives of banks and financial institutions said they had invested in commodity exchanges for developing the market, not just for recording profits. The integrity of the systems in these exchanges had to be preserved, they added.

Nabard Chairman Prakash Bakshi, who holds stakes in Multi Commodity Exchange and other commodity futures exchanges, said, “For investors like us, there is a lesson to be learnt from NSEL developments.” Issues regarding an improvement in collateral management, governance and management information systems were crucial for commodity futures exchanges, he added.

In the case of NSEL, warehouse receipts were issued without checking stocks at the exchange’s warehouses.

D Sarkar, chairman and managing director, Union Bank of India, said an improvement in governance and settlement practices would improve confidence.

Recently, MCX investors met Forward Markets Commission Chairman Ramesh Abhishek to understand the impact the regulator’s steps, to avoid an NSEL-like default, would have on MCX investors and promoters.

According to an investor, the FMC said withdrawal of the ‘fit and proper’ status was not on the immediate agenda. It added two working groups set up by the finance ministry were in charge of the investigation and the course of action to be followed.