The Forward Markets Commission (FMC) has convened a meeting of heads of commodity exchanges on Tuesday, to discuss and finalise the shape of the proposed Investor Protection Fund (IPF) rules, plus some other priority issues.
According to sources, the commodity markets regulator had proposed the appointment of five trustees for managing an IPF, one being its own nominee. It is also mulling a a uniform Rs 2 lakh per claim to be collected in case of default and deposited in the IPF account, irrespective of the sum of the claim.
IPF is aimed to protect the interests of clients of an exchange’s trading members who may have been declared defaulters or expelled.
Currently, what is collected as penalty, along with the original defaulting sum, is kept with the exchanges. The Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) have shown a total balance of Rs 1.74 crore and Rs 95.18 lakh in their IPF accounts, respectively, as on March 31. Other national and regional exchanges either do not have any IPF or have a negligible amount in it.
FMC plans to make IPF the source for compensation to an investor in case of a defaulting trading member but also make it a dispute resolution mechanism. On arriving at a consensus, the FMC will come out with a comprehensive guideline.
There is also the option of replicating in commodity derivatives the model adopted by the equity markets regulator, the Securities & Exchange Board of India (Sebi), for the stock market. Sebi had, in June, relaxed its IPF norm in favour of brokers and directed members to deposit surplus amounts in the client’s account after satisfying all claims.
Client code modification is another item on the meeting’s agenda. FMC proposes to follow the Sebi guidelines. FMC would also try to streamline financial transactions in the meeting. According to sources, the regulator has proposed to accompany a bank certificate with a demand draft of at least Rs 20,000. High frequency or algorithmic trading in commodity futures is another issue the FMC plans to discuss with exchanges.