Finding the National Commodity & Derivatives Exchange (NCDEX) guilty of violating regulatory norms, the Forward Markets Commission (FMC), the commodity markets regulator, has asked the exchange to withdraw the circular on reduction of transaction charge immediately.
FMC told the NCDEX not to implement the circular, but the exchange had earlier asked appealed to the regulator that “transaction charges are a prerogative of the exchange. Therefore, the exchange has not violated any regulatory norm.” The exchange officials were not available for comment on the regulator’s decision to suspend the transaction charge circular.
FMC has rejected NCDEX’s appeal and asked it to place the matter before their board immediately. The regulator may also issue a warning to the exchange not to indulge in unfair trade practices in future.
Following a steep erosion of over 50 per cent in its turnover since July this year, the NCDEX tried to lure traders by reducing the transaction charges to a minimal amount, especially in the latter part of the day.
Interestingly, commodities like precious metals, base metals and energy are the three segments in which NCDEX manages very low turnover while the three global commodities are traded heavily on MCX.
The FMC spokesperson told Business Standard that the regulator’s final decision, penal charges, if any, has been kept in abeyance for the time being and will be taken in due course. Till then, the exchange circular will remain suspended.
According to sources, the regulator may also ask NCDEX to reverse the relaxation in charges on the transactions already done if required. The exchange may have to compute uniform transaction charges at Rs 3 per lakh for the business transacted after December 30 across the trading day which the exchange had reduced to Rs 0.05 per lakh of value of trades after 3.30 pm of trading session through a circular on December 29.
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Market sources believe that the FMC’s action will evoke a fresh round of traders’ disinterest on the NCDEX if the transaction charge relaxations are reversed for the differential amount. Traders on one hand will not be ready to pay differential charge while NCDEX will insist on the same, they added.
This is repetition of the NCDEX’s violation of regulatory norm in January 2006 wherein the exchange had suddenly decided to change the settlement price norm for the January contracts in urad and chana. The decision was taken during the currency of the contracts for which the FMC found the exchange guilty. That time also, the NCDEX had denied any violation of the regulatory framework.
The NCDEX at 4.16 pm had displayed on its website the change in the contract term saying, “Members are informed that the final settlement price of urad and chana January contracts will be determined on the basis of the average of polled prices of the last five days, including expiry day.”
This was against the normal practice, which takes the final spot price on the expiry day as the settlement price. The exchange withdrew the decision the same day around midnight following a direction by the FMC resulting into the loss of traders worth rupees crores.