The Union government has withdrawn the earlier exemption granted to spot commodity exchanges for launching one-day forward contracts in both agricultural and non-agri segments, with immediate effect.
The order was notified last month and made public on Wednesday. The exemptions were granted to National Spot Exchange Ltd (NSEL), NCDEX Spot Exchange Ltd (NSPOT) and National Agriculture Produce Marketing Company of India Ltd (National APMC). These came with a warning of withdrawal if there was short-selling or other wrongdoing.
NSEL (promoted by Financial Technologies) got the exemption in June 2007. NSPOT and National APMC got it in July 2008 and August 2010, respectively. NSPOT (name later changed to NCDEX e-Markets Ltd) is promoted by National Commodity & Derivatives Exchange (NCDEX). National Multi Commodity Exchange's promoter, Neptune Overseas, pioneered National APMC.
“Having examined the activities of the entities and on the basis of the experience gained, the central government is of the view that (giving them the) exemption, thereby facilitating unregulated forward trading on their platforms, have failed to serve the purpose...(And), in view of various risks associated with trading in such unregulated entities in areas of monitoring and surveillance, risk management and settlement systems, corporate governance, equity structure, warehousing, conflicts, etc, the forward trading in such unregulated entities is not in the public interest,” the government notification says.
Faced with a Rs 5,600-crore payment default crisis, NSEL discontinued all contracts on July 30, 2013. The other two exchanges never used the granted exemption.
Therefore, say trade sources, withdrawal of the exemption is unlikely to affect any exchange or its members. However, a corporate group seeking similar exemption to introduce one-day forward contracts is likely to face problems.
“NCDEX Spot is not using the exemption. We had written to the government in October last year for its withdrawal which has been effected now. It would not affect our business. We would continue with our spot market model and modernise the spot commodities market in India using the principles of efficient markets. We would continue to work closely with our customers and provide them with an efficient, transparent, online trading platform and services,” said Rajesh Kumar Sinha, CEO, NCDEX Spot.
Neptune Overseas could not be immediately reached, even as a person from the company said, “There is no one who can respond to your call. National APMC got exemption but, never used it.”
