CDSL and NCDEX get licence to set up repositories

Paves way for trading of electronic warehouse receipts to boost commodity trade

With licences issued to two commodity repositories, commodities trading, especially agri commodities, will see a revolution, as commodities will now be traded in the same way as shares in demat form. 

The Warehousing Development and Regulatory Authority (WDRA) has granted licences to the BSE-promoted depository, Central Depository Services (India), or CDSL, and the National Stock Exchange-anchored National Commodity and Derivatives Exchange (NCDEX) to set up repositories. If all goes well, in the third quarter of the current calender year, the repositories will be operational, say sources. This infrastructure will make trading of electronic negotiable warehouse receipts possible. 

According to the WDRA guidelines, repositories must have a net worth of Rs 50 crore and their promoters’ equity must be reduced to 24% in 10 years.

Samir Shah, managing director and chief executive officer, NCDEX, said, “The NCDEX has close to a decade of experience in maintaining and tracking commodities, ownership transfer, electronic pledges, all in electronic form. COMTRACK and COMLIVE — the systems developed by the exchange and subsidiary NeML, respectively — have pioneered electronic accounting of commodities.

This experience, knowledge, and technical know-how give us the confidence for establishing a full-fledged repository under the WDRA. This central repository will not only help in commodity management and give the required impetus to warehouse receipt financing but also serve as the central data source for policymakers, helping shape agri policy decisions.”

The BSE, according to sources, will hold 24-25% stake in CDSL, which is talking to the Multi Commodity Exchange to sell almost a similar amount. 
 

According to an exchange industry source, hardly 5% of the warehouse receipts will be traded while a large part of that will be traded in spot trade, which usually takes place in mandis and among the traders and processors.

Repositories will appoint repository participants, who will work with the respective warehouses and clients. With the repositories in place, WDRA-regulated warehouses will be in charge of issuing electronic receipts, the quality of commodities and delivering these.

Vijay Veerachamy, director, business consulting, Sapient Global Markets, a global consulting firm, said: “Globally different models are adopted for warehouse receipts and its record keeping.” 

He said some countries like Australia had a de-centralised warrant system, by which ownership information was maintained by warehouse companies and receipts issued by them were tradable.

The other model, he said, “is where the ownership information is maintained in a central system for all exchange deliverable warrants”. 

The Intercontinental Exchange and The London International Financial Futures and Options Exchange (LIFFE) have supported EWRs of this nature through Electronic Commodity Operations Processing (eCOPS) and Gaurdian systems for about a decade now. 

In both cases, the owners of goods can trade the commodities electronically or use the warrants to secure financing through various arrangements like REPOs or Pools.
 

In India, getting finance against electronic warehouse receipts will be easier because by pledging such receipts, finance can be obtained. Pledging will be recorded by repositories, which will be their big source of revenue.

CDSL and NSDL were providing commodity repository services but that was discontinued by Sebi three years ago, after the NSEL crisis.