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The commodity futures regulator, the Forward Markets Commission (FMC), has tightened norms for national exchanges regarding the constitution of board of directors, independent directors and chief executive officers (CEOs). FMC has asked exchanges to give effect to these guidelines, aiming to improve corporate governance, by August 31.
FMC has made it mandatory to have 50 per cent of directors as independent, of which four will be appointed by the Commission. Any whole-time executive director, other than the MD and CEO, can be part of the remaining 50 per cent directors.
For an independent director, the maximum age limit is 70 and a maximum two terms of three years will be permitted. The new norms dictate who cannot be an independent director.
The managing director will be the ex-officio director of the board and will not be an independent or other director. However, the chairperson of the board of director shall be from the board of independent directors appointed by the FMC.
Guidelines prescribe that every committee formed by the board shall have at least one independent director and the exchanges shall give three options to FMC for approval of every vacancy of independent director.
FMC has also prescribed eligibility criteria for an independent director. He must have experience and education qualification in commodities or derivatives or the group he is representing on the exchange's board, like farmers or exporters or importers. he should not have any relationship with the exchange in the past three years.
A person who has a pecuniary relationship with the exchange, promoters, large shareholders, directors or holding or subsidiaries of the exchange will not qualify to be an independent director.
Independent directors will not be allowed to get any benefits other than sitting fees.
Even with regard to the managing directors, the Commission has said his appointment and renewal shall be subject to FMC's approval and in case of resignation of the MD, the senior-most executive of the exchange shall hold charge till the new MD is appointed.
FMC said while seeking approval of MD's remuneration, the exchange shall take into account its revenue and net profit, along with other things. In remuneration, the variable component cannot be more than a third, and no incentives can be provided for excessive risk in the short term. An MD's maximum age has been fixed at 60.
