As a direct fallout of its recent investigations into the working of NCDEX, commodity futures market regulator, the Forward Markets Commission (FMC), has decided to appoint external auditors for all three national commodities exchanges — NCDEX, NMCE and MCX — along with an Indore-based regional exchange NBOT.
The commission’s latest move is aimed at detecting regulatory lapses and misuse of funds, if any. The appointment of the auditors is expected to be finalised within a week, said a source in the commission on condition of anonymity.
In its NCDEX probe, FMC is believed to have found some alleged discrepancies in the accounting treatment of interest on margin money of its members, and even in the Settlement and Guarantee Fund (SGF) maintained by the exchange. Although NCDEX denied any misuse of funds, the regulator had – vide its February 19 order against the exchange – stated that there were instances of misuse of funds. The order added that the exchange assured FMC that it has already tightened its internal control systems.
FMC now wants to ascertain if similar misuse or diversion of funds has occurred in any other exchange, the source explained. As a result, the mandate of the proposed external auditors will include – among other things – investigating various expenses and fulfilment of investment norms related to margin money as well as SGF.
The idea is to place special emphasis on proper use of such funds following the FMC’s findings in the case of NCDEX. The proposed external auditors will work independently of the annual audit that FMC undertakes itself.
Other regional exchanges will also come under the FMC’s scanner, although the regulator is planning to audit their books itself by sending its officials directly to the regional exchanges. This is because volumes of such smaller exchanges are much less as they trade in very few commodities, the source explained.
Top brokers to be investigated too
It has been reliably learnt that FMC has extended the scope of its audit to include even the top 100 brokers of all the national commodities exchanges.
“But this is a routine annual exercise and generally focuses on compliance. FMC will look for proper maintenance of all records, issue of contract notes to clients, collection of margins from clients and fulfilment of KYC (know your client) norms. If the regulator finds any discrepancy, it will inform the concerned exchange so that it can take the necessary action,” the official said.