MMTC comex faces regulatory tangle

State-run firm MMTC and brokerage house Indiabulls' plan to set up a national-level commodity exchange may find it difficult to get regulatory nod in the absence of specific guidelines for this purpose.

MMTC and Indiabulls Financial Services plan to set up a special purpose vehicle (SPV) for the exchange, with the public sector firm holding a minority stake of 26 per cent.

"We have already applied to the Forward Markets Commission for permission to set up a national level commodity bourse," MMTC Chairman and Managing director Sanjeev Batra said.

However, when contacted, FMC Chairman B C Khatua denied having received any application for the venture.

"We are yet to take a decision whether to allow another commodity exchange at the national level and we have not yet received the application," Khatua told PTI.

The MMTC-Indiabulls joint venture could also face the problem of lack of detailed guidelines from FMC for launching a commodity exchange at the national level.

"There are no specific guidelines for setting up a commodity exchange," Khatua said.

The exchanges which already exist have been formed based on broad parameters.

A senior official from an existing commodity exchange said only the regulator can say whether there is any need for a fourth exchange at the national level or not.

"This proposed exchange by Indiabulls and MMTC would be promoted by those who are already trading in futures market, while the other two leading exchanges like MCX and NCDEX do not have a conflict of interest," the official added.

MMTC recently got approval from the commerce ministry for foraying into the commodity futures sector and the exchange is estimated to attract an initial investment of Rs 100 crore.

MCX is promoted by a private listed company Financial Technologies, while NCDEX is a demutualised body, in which various financial institutions hold stakes.

MMTC would be competing with three existing commodity exchanges and allowing trade in certain commodities not yet done by MCX and NCDEX would give it an advantage.

"The new exchange would have to compete with NCDEX and MCX. We will allow trading in both agro and metal commodities where delivery will play an important role. There are opportunities for starting futures trading in carbon, iron ore and fertilizer which are not available currently in any of the exchanges," Batra said.

MMTC's plan to enter the futures market comes at a time when the business of commodity exchanges is sliding. Turnover of all the commodity exchanges in the first half of this fiscal dropped by about eight per cent to Rs 17,55,165 crore from Rs 18,98,678 crore in the year-ago period.

Batra, however, said the fall in turnover recently is a temporary phase and was mainly due to the banning of certain agri-commodities in the futures market.

"We had appointed PwC to study the prospect of starting a commodity exchange and its report said India has enough potential and space in futures trading of commodities."

The proposed exchange may also look into currency trading, though it is yet to be allowed.

If MMTC-Indiabulls set up a commodity bourse, it will be the country's fourth exchange at the national level after MCX, NCDEX and NMCE. There are 20 regional commodity exchanges in the country as well.