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End game for six regional exchanges?

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Dilip Kumar Jha Mumbai

Commodities regulator asks for reports on participation; to consider these at the time of annual renewal.

Half a dozen regional commodity exchanges (RCEs) that were near-defunct for several years may lose their recognition. The Forward Markets Commission (FMC), the commodity derivatives market regulator, has asked all RCEs for reports on the initiatives taken to attract participation.

Since the emergence of national online trading platforms in 2003, the age-old RCEs have lost business. A senior FMC official said they needed to rethink about recognition to these regional platforms.

The last occasion when FMC recognition was withdrawn was with the Jaipur-based Bullion Association Ltd in August 2009. It had got a five-year okay for conducting futures trading in mustard seed, mustard seed oil and mustard seed cake. However, the exchange did not organise forward trading for long and did not seek renewal.

 

The FMC website has listed 16 RCEs, of which six have failed to transact any business for several years. The remaining exchanges, however, have also lost commodity business volume and turnover to national commodity exchanges.

In the pre-national online exchange era, traders were transacting business mainly in agri commodities. They have largely shifted to the National Commodity & Derivatives Exchange (NCDEX).

Barring the Cotton Association of India, which got permanent recognition from the ministry of consumer affairs through Parliament and requires no filing for renewal, all these regional exchanges need to seek renewal annually. According to FMC official, it will rethink at the time of the next renewal, due in April.

The regulator has also asked the national commodity exchanges for regular reports on the action taken by them to attract participation in illiquid counters.

Lack of funds and skilled manpower have been the major problem for these regional exchanges to compete with national platforms. Unlike the ring trading system available in regional exchanges, where traders are required to be physically present, national platforms facilitate trading online from anywhere in the country. Many regional exchanges initiated efforts to convert into national ones but failed due to the paucity of technical and economic support from their members.
 

SETTING SUN
Regional commodity exchanges that did not get permission for new contracts
ExchangeDate of
establishment
Trade 
permission for
Status
Haryana Commodities 
Exchange, Sirsa
-Cottonseed oil 
cake, mustard 
seed
Permission 
not granted 
Meerut Agro Commodities
Exchange, Meerut
-Gur (jaggery) Permission
not granted 
Central India Commercial
Exchange, Gwalior
-Mustard seedPermission
not granted
Spices & Oilseed
Exchange, Sangli
1958Turmeric Permission
not granted
East India Jute & Hessian
Exchange, Kolkata
1919 as Calcutta
Hessian Exchange
 Permission
not granted
Cotton Association of
India, Mumbai*
1875 as Bombay  Cotton
Trade Association
 Permission
not granted
* Got permanent recognition from consumer affairs ministry through Parliament and requires no filing for renewal
Source: Forward Markets Commission

“We made extreme efforts between 2002-2006 to convince our members to trade on our own platform. We conducted seminars and meetings, but failed. Now, it’s up to FMC to take any action of its choice,” said Lokchand Nemani, chairman, Spices and Oilseeds Exchange Ltd, established in 1958. RCEs contributed Rs 2,594 crore of trades as against Rs 662,518 crore by national platforms during the fortnight ended December 31, 2011.

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First Published: Jan 12 2012 | 12:07 AM IST

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