'Over-regulation' by FMC upsets commexes

Some exchanges say FMC seeking extra-sensitive information, regulator dismisses charges

The Forward Markets Commission’s (FMC) recent directives asking exchanges to provide a host of information on clients’ positions and details of warehouse stocks have ruffled quite a few feathers in the top administration of commodity exchanges. Senior functionaries of at least three commodity exchanges said on condition of anonymity the market regulator was seeking extra-sensitive trade information, resulting in over-regulation in the commodity derivatives market.

Last week, the market regulator sent three communications to the five national exchanges to furnish names of 10 major commodity-wise gainers and losers on a monthly basis and put the details on their respective websites. In addition, FMC asked the exchanges for details of the number of participants in each commodity for every contract, volume and open interest ratio of highly liquid commodities for three years. Regarding exchange-accredited warehouses, the regulator asked for eight different types of details including way-in and way-out stock positions of commodities in each registered warehouse, charges, insurance and risk-related policies.

 

While Ananda Kumar, chief of corporate services, National Commodity and Derivatives Exchange Ltd (NCDEX), said the FMC’s move was in the larger interest of the commodity markets, officials from other exchanges said information like providing names and quantum of commodity-wise major gainers and losers and warehouse stocks, and putting these on websites could lead to misuse of such information. Besides, compilation of such information involves several layers and exposes it to the risk of leakage.

The chief executive officer (CEO) at one of the exchanges said: “Sharing such information could raise serious problems, as later the regulator may ask the exchanges to explore the reasons for such a gain and loss.”

The regulator has, however, defended its move. Usha Suresh, economic advisor at FMC, said: “The Commodity Futures Trading Commission, the US regulator for derivative markets, publishes a weekly Commitment of Traders Report, which discloses the number of traders, the percentage of open interest by category, data on commercial and non-commercial holdings and the concentration of position by the largest four and eight traders. Disclosures on these lines here, too, will enhance transparency and improve the integrity of the market, so that trading is done in a transparent manner.”

But a senior executive at another exchange said such “over-regulation” wasn’t warranted as commodity exchanges are self-regulated entities. Exchanges, in any case, were providing a lot of information in accordance with the rules laid out by the regulator, the official said.

Apart from the exchange executives, a member-broker who is active on most of these exchanges said the regulator might be interfering in the privacy of a client and a member who has been trading or otherwise facilitating trade smoothly.

Ashok Mittal, CEO of Emkay Commotrade Ltd, said: “Instead of seeking information from exchanges, the regulator should focus on strengthening its own surveillance system to avoid human intervention at every stage with the risk of leakage.”

Besides NCDEX, some others support the FMC. Anil Mishra, MD and CEO of Ahmedabad-based National Multi Commodity Exchange, said: “We declare the warehouse position on our website where it shows warehouse-wise arrival, delivery and closing stock of a commodity daywise. We feel this is a transparent way of keeping stakeholders informed on what is happening with the underlying asset.”