To include security deposit, net worth of members, client protection norms.
The Forward Markets Commission (FMC) proposes to work out uniform membership norms for trading members across commodity exchanges.
“Currently, each exchange sets its own criteria for its members which is ratified by FMC. Though it has been the norm, national exchanges have evolved with time and their membership has also grown. It is time for the regulator to set up a uniform criteria for membership,” said an official source close to development.
The membership criteria, among other things, would include security deposit by members with exchanges, net worth of the members, security software, and most importantly, client protection norms. Sources said this criteria would be different for different member categories and thus classified as partnership firm members, proprietary firm members and individual members.
“FMC may not spell out a specific number but may link these membership criteria to a parameter like business growth over the last few years. These will be uniform for members across exchanges,” said official sources.
“Besides regulation, net worth and client protection norms are important from the point of supervision, redressal of complaints and ensuring market stability. If an order is passed to refund the clients’ money , then the broking firm should have the money to refund. Thus there has to be a minimum net worth criteria to deal with such problems,” said sources. Similarly, security deposit collected by exchanges from the firms should be sufficient to tide over time of crisis as and when it happens. It was best to stay prepared, they said.
Meanwhile, FMC has stepped up its surveillance of the futures market while awaiting punitive powers through the amendments tabled to Forward Contracts (Regulation) Act.
It has decided to incorporate a market monitoring surveillance system, with inbuilt alerts on odd market deals unaligned with the predefined norms and rules. It has formed an internal committee to decide on the technological bidders for these operations.
It has also started joint surveillance with the equity markets regulator, the Securities and Exchange Board of India (Sebi). Official sources said due diligence for every firm or entity that applies for any commodity-related activity or commodity trading in the forwards market will be done in co-ordination with Sebi. Till now, Sebi was brought in only if there was a complaint or query.
These measures come at a time when the United States commodity futures trading commission is preparing to implement a new law, the Dodd-Frank Wall Street Reform and Consumer Protection Act. The bill aims to regulate swap dealers, increase transparency and improve pricing in the derivatives market.
