The Forward Market Commission (FMC) may relax its recently issued directive to members of commodity exchanges on physical contract notes. On February 2, FMC made it mandatory for all trading members/commodity brokers to issue contract notes in physical form to individual clients for all transactions. According to the letter communicated to commodity exchanges for their respective members, the directive was issued to reduce disputes in delivering contract notes. Besides, members were required to keep proof of the physical delivery of the contract notes.
It has also been made compulsory for the members to send a detailed monthly statement of account to all clients, if the latter has entered into a minimum of three transactions in the same month in physical form. The mandatory requirement of physical contract note is only for individual clients and not corporate members.
Following continuous representations from the members of the exchanges, the regulator is considering some relaxation by exempting members from the mandatory obligation for a client, if the member could get an undertaking from the same client. “The client of the broking firm or exchange member has to give an underwriting, some of which has to be written in his/her own handwriting and regional/mother language, that contract note in physical form need not be sent to him/her. Moreover, there has to be genuine reasons for this request. Only in these cases, where the client wants to take the onus on himself for the exemption from these mandatory guidelines, we may consider an exemption,” explained sources close to the development. They added no decision, however, had been taken till then and things were under consideration.
The trading members have been representing to the regulator for some relaxation, since the directions came, citing increase in costs and environmental reasons for increased use of paper. At present, a member sends an email confirmation of the trade and contract note.
FMC has received numerous complains where the client either does not get the email or fails to read it, and in the process ends up losing money, if the trade position or the market turns bad. FMC believes that physical contract note is a statutory guideline that cannot be reversed. However, if a client and a member are comfortable in their ways, there may be a relaxation.
“After all, internet penetration in India is not much, and in some places, due to power shortage, accessing electronic emails is also a problem. In such situations, the only authenticity is physical contract note,” said official sources.
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Besides, FMC also has stepped up its surveillance of the futures market, while awaiting punitive powers through the amendments tabled to Forward Contracts (Regulation) Act.
It has decided to incorporate a market monitoring surveillance system, with inbuilt alerts on odd market deals, unaligned with the pre-defined norms and rules and started joint surveillance with the equity markets regulator, the Securities and Exchange Board of India. It also proposes to work out uniform membership norms for trading members across commodity exchanges. The membership criteria, among other things, would include security deposit by members with exchanges, net worth of the members, security software, and most importantly, client protection norms. Sources said this criteria would be different for different member categories, and thus, classified as partnership firm members, proprietary firm members and individual members.