Imposes a five-year restriction; directive asks exchanges to share defaulters’ details.
The Commodity derivatives market regulator, Forward Markets Commission (FMC), has banned the re-admission of defaulters at all commodity exchanges for five years.
In a directive dated September 13, FMC also asked all exchanges to share details of defaulters and settle claims among themselves.
Since, every exchange is governed by its own set of guidelines, a defaulter at one exchange was never punished by another.
“This is a positive move, as the defaulter of one exchange should not be allowed to execute any trade on any other exchange,” said Naveen Mathur associate director (commodities), Angel Broking.
The FMC directive said: “If a member is declared a defaulter in one commodity exchange, the exchange concerned will immediately inform all other exchanges with full details.”
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The regulator asked exchanges to take some pro-active measures in case the defaulter-member was a corporate body. The name and details of shareholding of the promoter and other dominant shareholders must be shared with all exchanges.
In case the associates of the defaulter broker were holding membership in other commodity exchanges, action, if any required to be taken, should be decided by the respective commodity exchanges after examining the relevant fact, the directive said.
A defaulter member of a particular exchange holding membership in another by his/her/its own name should also be declared a defaulter in the other exchange.
This will strengthen commodity exchanges and bring additional transparency in overall trade. This will also encourage genuine trade in commodity exchanges, an analyst said.
Further, FMC ordered that the assets of defaulters with liability be attached and disbursed exchange-wise according to the claims at each exchange.
Defaulter assets are to be attached and the liabilities settled from any surplus, FMC said.
“Defaulter is a rare occurrence. It should not necessarily be product-specific but, incidence-specific. In case the margin is not collected due to the late evening price fluctuations in specific commodities, then chances are higher for clients to default. So, this is a welcome move by the FMC,” said Vijay Kumar, chief business officer of the National Commodity & Derivatives Exchange Ltd, earlier.
All commodity exchanges are directed to make suitable changes in the by-laws.