The move follows merger of the Forward Market Commission (FMC) with Securities and Exchange Board of India (Sebi) with effect from September 28.
In a statement, Sebi said that 12 associations have been deemed to be recognised as stock exchanges. These bourses are Ace Derivatives and Commodity Exchange, Bombay Commodity Exchange, Multi Commodity Exchange of India, National Commodity and Derivatives Exchange, National Multi Commodity Exchange of India, Rajkot Commodity Exchange, Chamber Of
Commerce and Spices and Oilseeds Exchange.
In addition, Universal Commodity Exchange, Cotton Association of India, India Pepper and Spice Trade Association and Indian Commodity Exchange have also become stock exchanges. To fulfil this additional responsibility of regulating the commodity derivatives market, Sebi has created additional seven departments like legal affairs, surveillance investigations and enforcement divisions.
Also, it has created departments for commodity derivatives market regulation, market intermediaries regulation and supervision and economic policy and analysis. In the first ever merger of two regulators, the over 60-year-old FMC was merged with the younger, but much bigger, capital markets watchdog Sebi to create a unified regulatory body.
The Securities and Exchange Board of India (Sebi) was set up in 1988 as a non-statutory body for regulating the securities markets, while it became an autonomous body in 1992 with fully-independent powers. FMC, on the other hand, has been regulating the commodities markets since 1953, but lack of powers has led to wild fluctuations and alleged irregularities remaining untamed in this market segment.
The commodities market has been known to be more prone to speculative activities compared to the better-regulated stock market, while illegal activities like ‘dabba trading’ have also been more frequent in this segment. Besides, the high-profile NSEL scam that rocked this market in the recent past, and the subsequent regulatory and government interventions in this case eventually led to the government announcing FMC’s merger with Sebi.
Moreover, Sebi on Wednesday issued a comprehensive risk management framework for regional commodity derivatives exchanges, including deposits required for members and margins need to be levied. The circular will be implemented by April 1, 2016, the Securities and Exchange Board of India (Sebi) said.
All recognised associations under the Forward Contracts (Regulation) Act, 1952 are deemed to be stock exchanges under the Securities Contracts (Regulation) Act, 1956, with effect from September 28, 2015, the day when merger of commodity markets regulator FMC with Sebi became effective.
Issuing detailed guidelines today, Sebi said regional commodity derivate exchanges will continue with their practice of keeping exposure free member deposits at the current level. The exchanges will levy minimum ordinary margins of four per cent on the open outstanding positions. Also, they can charge appropriate delivery period margins, additional margins among others based on their evaluation.
Sebi said that bourses have the right to impose additional risk containment measures over and above the risk containment system mandated by it. “All applicable margins shall be collected by exchanges before start of trading on the next trading day. If the member’s collateral is insufficient to cover the required margin and deposit requirements, member shall not be allowed by exchanges to further increase his open positions,” Sebi said.
It further said that exchanges will levy ordinary margins at the level of each individual client comprising his positions in futures contracts across different maturities. “For member level margin computation, margins shall be grossed across various clients. The proprietary positions of the member should also be treated as that of a client for margin computation,” the regulator noted.
Mark to market settlement on all open positions of clients/members will be done on a daily basis in cash. The daily settlement price will be reckoned and disseminated by the exchange at the end of every trading day. The exchanges will collect collateral from their members only in the form of cash, pledging of bank fixed deposits and bank guarantee.