Pool to avoid termination, govt tells regional commodity exchanges

The ministry of consumer affairs in consultation with the commodity market regulator Forward Markets Commission (FMC) has offered the regional commodity exchanges the option of working out a common platform or software to facilitate online trading while rejecting the option of reserving certain commodities to be traded only on the regional exchanges.

Currently, based on FMC’s suggestions, the ministry proposes to set up a committee to review norms for regional commodity exchanges for enabling possible restructuring for future viability.

In a meeting held last month, the regional exchanges had suggested to the FMC to select certain commodities which could be exclusively traded on regional exchanges and bring down eligible capital criteria of Rs 100 crore for converting into national exchanges.

Official sources explained that if all regional commodity exchanges pooled in funds and set up a common software, all the exchanges could be inter-connected. Thus, a member on any regional commodity exchange could trade the commodity online in a seamless manner on another regional exchange, and at the same time they could retain their flavour of specific commodities.

In the second option, if the regional commodity exchanges pooled in funds to set up a common trading platform, then any member across India could trade online all the commodities where the regional exchanges excel. In both these alternatives, there will be no need to bring down the criteria of net worth for regional exchanges to convert into national exchanges since all the exchanges or groups of exchanges depending on their proximity or common work culture could get together to pool in funds.

Officials added that commodities could not be set aside for being traded on regional commodity exchanges exclusively as national exchanges are mandated to trade in all commodities. The rules cannot be diluted for national exchanges that have permanent recognition.

A few months back, the FMC has made audit of regional exchanges mandatory by auditors appointed by it. Earlier, regional exchanges appointed their own auditors and these reports were given annually to the FMC.

Most regional exchanges are currently surviving on rental income, by letting out building space, and returns on fixed deposits. Besides, FMC also observed that some regional exchanges were using their own premises to trade on national exchanges, which is evident from high margins that do not correspond with the minuscule client size. Such practices are prohibited under FMC norms.

Earlier the FMC had asked all regional commodity exchanges for reports on the initiatives taken to attract participation. The FMC website has listed 16 regional commodity exchanges, of which six have failed to transact any business for several years.