Penalty on client code change delay slashed to Rs 5,000

The Forward Markets Commission has reduced —from Rs 25,000 to Rs 5,000 —the minimum penalty to be paid for delay in client code modification (CCM), after the new guidelines resulted in a more-than-100-per-cent fall in CCM across commodity exchanges in the last two months.

Sources close to the development said the decision follows representation from commodities market players. The view seems logical, they added.

According to the market players, while the transaction volume may be Rs 2,000-3,000 on a mini or petal contract, the member would pay minimum penalty of Rs 25,000 for a delay in CCM.

Earlier, irrespective of the value of the trade, a trading member was required to pay a minimum penalty of Rs 25,000 or one per cent of the value of a modified trade or two per cent, if the value was higher than five per cent of the total turnover posted by a broker on a given day — whichever was higher.

Sources, however, said the guidelines had served a purpose, and the number of CCMs was drastically fallen across exchanges.

“Some may be genuine, but the drastic fall, which the commission has observed shows the apprehension for which the penalty was imposed well served its purpose,” one of them said. According to informed sources, clients’ codes were changed for trades worth Rs 1,307 crore in September. This dropped by more than 100 per cent in the subsequent months.

Market sources said the misuse was mostly for tax purposes. That is, transferring a speculative loss in commodities trading from one client to another who could offset this against a speculative gain to reduce tax incidence on the gain, or to prevent a broker from transferring profits from a client account to his own account and showing his losses as those belonging to clients.