Tells all bourses to share lists of defaulters, bars them from trade
Moving in the footsteps of the equity markets regulator, the Securities and Exchange Board of India (Sebi), the commodity derivatives market regulator, the Forward Markets Commission (FMC), has directed all exchanges under it to treat a defaulter at any one of them as a defaulter on all the exchanges.
It has instructed all exchanges to share lists of defaulter, so that the culprit will not be able to trade on any. In a circular dated yesterday, FMC clarified, “If the membership of the defaulter exists in the name of a corporate (firm), then the name of dominant shareholder/s should also be intimated by the exchange on which the member has defaulted.”
Before this guideline, a defaulter on one exchange could shift to trading on others, due to the lack of communication and uniformity among exchanges. Since each exchange had its own own set of guidelines, a defaulter in one exchange was never punished by any other.
“Default is a rare occurrence. In case margin is not collected due to the late evening price fluctuations in specific commodities, the 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. The circular further said that if associate/s of the defaulter are holding membership of other exchanges, then action, if any, requires to be taken against such associate member/s. Such action will be decided by the respective commodity exchanges after examining the relevant facts, it added.
Sebi had issued such a guideline in 1992, mandating that a defaulter at one exchange would be treated as one on others. The FMC guideline means the money deposited as membership fee and trade margin will be frozen by the exchange on which the client has defaulted. Exchanges, after adjusting the default amount from the membership fee or margins paid to the exchange before executing a trade, are to deposit the residual amount in the client’s name.
Which leaves the question of what is to happen with the amount deposited as membership fee and margin on the exchanges for which a member is not a defaulter. Dilip Bhatia, CEO of Ace Derivatives & Commodity Exchange, said this would depend on individual exchange guidelines.