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The Forward Markets Commission (FMC) has increased the accountability of the board of a national commodity exchange, through statutory guidelines on minimum requirement for disclosure of information to it.
Learning a lesson from the information gap between the managing director and the board of directors at National Spot Exchange Ltd (NSEL), resulting in a Rs 5,600-crore payment default, FMC’s move entrusts a board with full financial control and responsibility of the exchange. It has ordered the board of all commexes to lay down an appropriate procedure for delegation of financial powers to the managing director or chief executive officer.
Expenditure above a particular level needs approval by the board or the audit committee. Items such as capital expenditure or agreements giving rise to a recurring obligation for more than three years, and loan and financial commitments, shall require prior approval of the board or audit committee, said FMC.
All matters related to salaries, bonus, increments and compensation at the level of department or functional heads will need approval of the board’s compensation committee. Also, a board should constitute a committee on risk management. This would be responsible for identification, measurement and monitoring of developments in this regard. And, oversee the risk and control measures needed to be built into the system. It will also specify the maximum exposure and borrowing limits, both company-wide and to members, commodities and regions. Plus, the settlement guarantee fund and action taken against defaulting members.
All matters on compliance with any directions of the regulators, any government agency or any other statutory or licensing authority shall be placed before the board. This will include all notices or cases and all pending litigation. The board is to also lay down a policy for disclosure, conflict of interest and their resolution.
And, address all complaints of deviation from such policy. With the approval of the board, the exchange will execute the liability insurance for directors to safeguard the professional liability of the board members arising from the performance of their duties for the exchange. The FMC has directed exchanges amend bye-laws as per their requirement showing compliance of the guidelines and report to the commission as per their early possible convenience.
