Foreign stake in comexes by year-end

The government may allow overseas companies to invest in commodity futures exchanges by end of the year, lifting a ban that's kept investors such as Nymex Holdings from participating in the country $900 billion market.

The government may cap ownership at 5 per cent for a single investor, said BC Khatua, chairman of the Mumbai-based Forward Markets Commission (FMC), mirroring rules set for stock exchange. The agency regulates India's 24 commodity bourses.

"We don't want an investor to work only with a motivation to make profit and drive the market,'' he said in an interview in Goa on September 22. "Otherwise the whole purpose of providing transparency through the exchanges is not met,'' he added.

The limit may force Goldman Sachs Group and Fidelity International to pare their stakes in the nation's biggest commodity bourses.

Exchanges worldwide have announced more than $64 billion in purchases and ventures since 2005 as they boost electronic trading and reduce costs.

Goldman bought 7 per cent holding in National Commodities & Derivatives Exchange (NCDEX) last year and Fidelity acquired a 9 per cent stake in Multi Commodity Exchange (MCX) to gain from a surge in trading in the fastest-growing economy after China. There was no cap when the two overseas companies bought stakes.

Goldman and the NYSE Group in January led a group buying 20 per cent of the National Stock Exchange (NSE). Deutsche Boerse and the Singapore Exchange bought 5 per cent each in the Bombay Stock Exchange, Asia's oldest. The bourse cut the brokers' holding to 49 per cent by selling stakes to 19 investors in May.

The central bank in December allowed overseas funds to buy as much as a combined 49 per cent in any of the nation's 22 stock exchanges. The limit for a single investor was set at 5 per cent.

The government may allow overseas and local funds to trade gold, silver, oil and gas futures to boost turnover. Commodities worth Rs 36 trillion ($905 billion) traded on the exchanges in the year ended March 31, up 68 per cent from a year earlier.

"This will bring in higher participation in the market and more liquidity,'' Khatua said. "Higher liquidity will lead to more efficient price discovery and we want to ensure that.''

Indian commodity exchanges are closed to overseas investors, although the country is the world's largest user of gold and the second-biggest producer of wheat, rice and sugar. Local traders and producing and consuming companies are the only participants, compared with the 13 million investors who trade stocks.

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VERTICAL LIMIT

The limit may force Goldman Sachs Group and Fidelity International to pare their stakes in the nation's biggest commodity bourses

Goldman bought 7 per cent holding in National Commod- ities & Derivatives Exchange (NCDEX) last year and Fidelity acquired a 9 per cent stake in Multi Commodity Exchange (MCX)

Commodities worth Rs 36 trillion ($905 billion) traded on the country's exchanges in the year ended March 31, up 68 per cent from a year earlier