Even as the Forward Markets Commission (FMC) is all set to introduce norms for regional commodity exchanges to obtain accreditation as national bourses, the move is unlikely to succeed in the prevailing market conditions.
The commodity markets regulator is finalising the norms which will allow regional exchanges to convert to national commodity exchanges, without losing their identity and core competence. FMC sources say the norms will be finalised within a fortnight.
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Since the introduction of national online trading platforms, regional commodity exchanges have almost become defunct, as members switched to online trading from the inherent open outcry on regional bourses. With no new members added in the past 3-4 years, trading volumes have dried up.
“Not only did they possess appreciable domain knowledge in the respective regional commodities, they also kept futures trading alive for ages in India. So, protecting their interest is of prime importance to policy-makers,” FMC chairman B C Khatua had said recently.
In the recently-listed norms for accreditation as a national platform, the regulator had introduced a clause that the minimum net worth should be Rs 100 crore. If this is extended to regional commodity exchanges as well, almost all of them will close down.
An analyst from a broking firm said that all of them put together would scarcely have Rs 50 crore of net worth. That means barring the three national commodity exchanges — MCX, NCDEX and NMCE — most of the regional commodity exchanges would have to shut shop.
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Apparently, the heads of many regional commodity exchanges are ready to meet on a common platform with their respective commodities.
“All regional commodity exchanges should merge to form a national entity, with the margins of the commodity traded on their respective platform passed on to their respective accounts. Otherwise, none of them would be able to survive alone, especially when the three national exchanges are functioning and another one is shortly launching the platform,” said an analyst.
Shyamal Gupta of Kotak Commodity said that with a net worth of Rs 100 crore, it would be impossible to generate a daily turnover of Rs 2,367 crore, with Rs 400 earned per crore of transaction.
Almost all regional commodity exchanges either offer trading in a single commodity or a majority of their small volumes comes from one contract. As the government’s efforts to delist commodities continue, fear remains whether the next victim is the actively-traded commodity on one of these exchanges.
Though the National Board of Trade (NBoT) survived the recent bout of suspension of soy oil because of the support of India’s largest edible oil producer, Ruchi Soya Industries, the launch of alternate contracts of soybean and soymeal failed to generate equal volumes as soy oil. According to analysts, other commodity exchanges may not be able to survive such sudden suspension of trading.