There is increasing jockeying for the power to regulate the emerging electronic spot commodity exchanges. The latest bid is from the Union agriculture ministry, which has said spot exchanges should come under their jurisdiction.
Pending a decision on the turf issue, trading in electronic warehouse receipts on the floor of spot exchanges has been delayed. There are three spot exchanges in the country with an electronic platform. There is ICEX from the Anil Ambani group, NCDEX and MCX group’s National Spot Exchange (NSE).
Two of the regulators for the spot exchanges, the Forward Markets Commission (FMC) and the Warehousing Development and Regulatory Authority (WDRA), fall under the department of consumer affairs. The WDRA came into existence only last year and is supposed to regulate electronic warehouse receipts and its trading on spot exchanges as negotiable instruments. The FMC, the commodity futures regulator, has been long aspiring to be promoted from a division in the consumer affairs ministry to an independent regulator. It had written, long before, to the ministry that since it was regulating futures exchanges, the spot exchanges should also fall under its jurisdiction.
| WHOSE SPOT IS IT? |
| * Agriculture ministry wants to be regulator; consumer ministry doing part of job |
| * Warehousing Development and Regulatory Authority has already issued draft norms for spot exchange regulation |
| * FMC says futures and spot exchanges should be with it |
| * Parliament panel says common regulator needed for futures and spot trading |
| * Trading in electronic warehouse receipts delayed as turf undecided |
There are three spot exchanges and the promoters of all three have futures exchanges, too, in their groups. Also, Parliament’s standing committee that reviewed the Bill seeking to amend the Forward Contracts Regulation Act has recommended that a common regulator for futures and spot trading be set up.
Last year, WDRA had issued several draft regulations, including one for regulating trading in electronic warehouse receipts (EWRs) and the platform on which these are to be traded as negotiable instruments, i.e. spot exchanges.
Since most of the trading on spot exchanges is expected to be in agricultural commodities, the agri ministry wants to regulate these trades. These exchanges presently take licenses from each state government under their respective Agriculture Produce Marketing Committee (APMC) laws. Some commodities are under the concurrent list and hence come under both state and central regulations. And, metals and some non-agri commodities don’t come under the agriculture ministry.
Since warehouse receipts issued in electronic form (or receipts for the demat form of goods warehoused) are supposed to be traded on the spot exchanges, WDRA wishes to regulate these trades. A source in WDRA said they ’d already issued draft regulations and sent it for comments to various government departments.
FMC has still some role to play in spot exchanges. These exchanges, if they want the facility of intraday netting or transactions (buying and selling on the same day), need exemption under Section 27 of the FCR Act for not treating netting as a one-day forward transaction. For this exemption, FMC has been declared a designated agency.
When asked, FMC chairman Ramesh Abhishek said, “So far as this exemption is concerned, we have asked spot exchanges to give regular reports to us on the netting business and conditions under which exemptions given are fulfilled.” In other words, FMC has already started regulating spot exchanges, though in a limited form.
Spot exchanges are expected to play an important role in the growth of agri commodity trading. Trading in electronically issued warehouse receipts in the form of negotiable instruments are expected to bring partial fungibility in the movement of goods and developing a nationwide market and price for agriculture commodities. Once a national Goods and Services Tax is implemented, fungibility will improve. This is crucial, as there are 7,000-odd mandis and a single agri commodity is quoted at different prices in all of these locations.
