This Article is From May 06, 2014

FMC Tightens Investment Norms; Scraps Promoter Concept

FMC Tightens Investment Norms; Scraps Promoter Concept

Tightening shareholding norms of commodity exchanges after the NSEL crisis, regulator FMC today said no resident individual can hold more than a 5 per cent stake in them and scrapped the concept of promoters and anchor investors for such bourses.

In an eight-page document laying out shareholding norms for national-level commodity exchanges, the Forward Markets Commission (FMC) today said at least 51 per cent of the shares of any commodity exchange will have to be held by the public.

This is to ensure broader participation in commodity bourses. Only a commodity exchange, stock exchange, depository, bank, insurance company or public financial institution can hold up to 15 per cent in such an exchange.

As per the norms, any shareholding in excess of the specified norms will have to be lowered to the threshold level within five years. The previous guidelines had allowed promoters/anchor investors to hold up to 26 per cent stake in a bourse.

Foreign investors will not be allowed to hold more than a 5 per cent stake. The combined holdings of people resident outside the country have been restricted at 49 per cent.

No foreign institutional investor can have any representation on the governing board of a commodity exchange, the regulator said.

The revised shareholding norms come into force immediately and are aimed at better and more effective
regulation. They come in the wake of the Rs 5,600-crore payment crisis at the National Spot Exchange (NSEL) last year.

The regulator said a commodity exchange needs to have a net worth of at least Rs 100 crore at all times.

"Since commodity derivative exchanges are financial market infrastructure institutions having an important regulatory role, there is a need to diversify their ownership structure and attract more institutional investors. Therefore, there is a need to revise the earlier guidelines," FMC said.

The FMC directed all six commodity exchanges - Multi Commodity Exchange of India, National Commodity & Derivatives Exchange, National Multi Commodity Exchange of India, Indian Commodity Exchange, ACE Derivatives and Commodity Exchange and Universal Commodity Exchange to amend their rules, including their memoranda and articles of association, to incorporate the revised norms within 45 days of receiving the directions.

Compliance should be reported to the FMC by June 23. Turnover at commodity exchanges fell to Rs 101.44 lakh crore in 2013-14 from Rs 170.46 lakh crore in the previous year, affected by the imposition of a transaction tax and the NSEL crisis.