Sebi sets timeline for commodity exchanges

Directs national and regional exchanges to adhere to these in stipulated time

Markets regulator the Securities and Exchange Board of India (Sebi) has directed regional commodity derivatives exchanges to submit a scheme for corporation and demutualisation for approval within a period of two years from the date of their association with Sebi, that is September 28, 2015. Following this, Sebi would give them its assent to adhere to the guidelines under the Securities Contracts (Regulation) Act, 1956 (SCRA) within three year from September 28, 2015, the regulator said in a circular on Thursday.

There are around half a dozen regional commodity exchanges that need to adhere to the regulatory guidelines. Owing to differences among their promoters and migration from regional exchanges to national ones, demutualisation and corporatisation for a majority of them might be difficult, resulting in consolidation in the commodity exchange business.

Also, the regulator has asked national-level commodity exchanges to comply with all Sebi guidelines within one year, that is  by September 2016. But, all of them will put in place adequate surveillance systems to monitor positions, prices and volumes to ensure market integrity till online real-time surveillance systems are set up and operationalised.

Sebi further said that regional commodity derivatives exchanges shall transfer the functions of clearing and settlement of trade to a separate clearing corporation within three years. Meanwhile, national exchanges need to comply with this norm within a year. Till then, the exchanges may continue with the existing arrangement for clearing and settlement of trade. But, exchanges require to set up a committee in this regard. The regulator has also asked exchanges to pay the regulatory fee.

Talking tough on regulations, Sebi said any national exchange with a networth below Rs 100 crore shall achieve this target by May 5, 2017. But, within six months, that is by March, such exchanges will be required to submit a detailed plan to achieve the target. Till recently, Ahmedabad-based National Multi Commodity Exchange was falling short of the Rs 100 crore networth requirement and was hovering around Rs 65-70 crore.

Regional commodity exchanges are required to achieve the Rs 100-crore networth figure in three years. However, the regulator has restrained exchanges from distributing profits to their shareholders until the target is achieved. Exchanges are required to submit an audited networth certificate from a statutory auditor on an annual basis.

On shareholding limits, Sebi has granted time until May 5, 2019 for national commodity exchanges. Under the new norm, commodity exchanges shall segregate their regulator departments from others and constitute an oversight committee for “product design” chaired by a Public Interest Director within three months.

Sebi has asked national and regional exchanges to constitute advisory committees and statutory committees within one year and three years, respectively.

Exchanges are required to appoint a compliance officer similar to that in equity exchanges. They are advised to transfer all penalties to their settlement guarantee fund (SGF) and investor protection fund (IPF), as the case may be. The regulator empowered exchanges to recover dues from members arising from the discharge of their clearing and settlement functions from their collaterals, deposits and assets of trading or clearing members.