Sebi puts in place warehousing norms for agri commodities

With an aim to improve the delivery and settlement mechanism, markets regulator Sebi today issued detailed framework on warehousing norms for agricultural products traded on commodity derivatives exchanges.
Under the norms, warehouse service providers (WSP) will be corporate bodies with subscribed share capital of Rs 10 crore.
An accredited WSP providing warehousing services would have a minimum net worth of Rs 25 crore for multi-commodities and Rs 10 crore for a single commodity.
The commodity exchange would have to ensure that the WSP, its promoters and key management personnel are 'fit and proper' to carry out the business.
The final norms have been put in place after taking into consideration views of all the stakeholders. The regulator had issued draft rules in this regard in June.

The commodity derivatives exchanges currently use the polling methodology for determining spot prices. It is being reviewed with intent to improve the credibility and transparency of such process.

Warehousing infrastructure and its ancillary services play a critical role in the delivery mechanism of the commodity derivatives market.
A robust and credible warehousing infrastructure is essential for an effective commodity derivatives market that can instill confidence amongst the market participants and other stakeholders.
"The exchange shall ensure that the WSP, promoters of WSP, assayers, key management personnel of WSPs, warehouses and assayers shall always be 'fit and proper' to carry out business of warehousing, have adequate knowledge of, and experience in generally accepted warehousing and handling practices for commodities, and are competent and willing to operate such a warehouse," Sebi said in a circular.

The regulator said that for accreditation of WSP, the commodity exchanges will follow a transparent process by issuing open advertisements in leading newspapers and putting them up on the exchange website.
A WSP can be accredited with more than one exchange. Besides, the exchange would not make it mandatory that its WSP cannot provide services to another bourse.
Sebi said that WSP promoters should be responsible entities of repute and have been in the business of public warehousing for at least three years. They should have adequate knowledge of and experience in generally accepted warehousing and handling practices for commodities.

WSP and its promoters should not have any record of serious violation of laws or being expelled by any exchange in the last three years.
In case of reduction in net worth below the stipulated
amount, a time period of six months to one year may be allowed to the WSP to augment it.
However, in the event when a WSP is unable to augment the net worth to the requisite level within the allowed time frame, the WSP should not carry out any new business.
The WSP should submit an audited net worth certificate to the exchange every six months -- at the end of every March and September within 45 calendar days.

A WSP seeking accreditation with an exchange is required to furnish a refundable security deposit of at least Rs 50 lakh along with the application form. In addition, WSPs need to furnish financial security deposits.
The exchanges should be responsible for monitoring the warehouses of their accredited WSPs. They also need to ensure independent audit of the stock in the warehouses by expert agencies at regular intervals.
The bourses have to ensure that the WSPs to be eligible for accreditation have reasonable facility and infrastructure for proper handling and storage of commodity, have an Investor Grievance Cell to handle consumer complaints, have a professional management team to oversee its functioning and operations and have their own warehouses.

The commodity exchanges should review and appraise operational performance of each WSP every year.
"In the event of bankruptcy or insolvency of the WSP or other such contingency, there must be no restrictions placed upon owners/depositors of the commodity wishing to take possession of their individually identified commodity and remove it from the accredited warehouse(provided rent and handling charges are paid)," the regulator noted.