Commodity Exchanges Current Affairs

NMCE, ICEX to merge to create India’s third biggest commodity exchange

National Multi Commodity Exchange (NMCE), India’s first demutualised online national multi-commodities exchange will merge with Indian Commodity Exchange (ICEX).

The merged entity will create India’s third biggest commodity exchange. The largest commodity exchange by volume is the Multi Commodity Exchange (MCX) followed by National Commodity and Derivatives Exchange (NCDEX).

Key Facts

This is the first merger deal in the commodity exchange space in India. It has been approved by the boards of both exchanges and is expected to be completed by December 2017, subject to regulatory approvals. In the merged entity, the ICEX will hold a 62.8% stake, while NMCE shareholders will own the rest.

The new exchange will offer a wide range of contracts, including bullion, oil, rubber, and other agri-commodities. It will also offer the world’s first diamond futures contract, which has already received in-principle approval from the marker regulator SEBI.

The merger will help ICEX to further strengthen its position in the country’s fast-growing commodity derivatives market. It will result in greater financial strength, the consolidation of clients and members, an enhanced product basket, and higher operational synergies. 

Commodity trading in India

Commodity trading is an exchange where various commodities and derivatives products are traded. Most commodity markets trade in agricultural products and other raw materials and contracts based on them. These contracts can include spot prices, futures, forwards and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or ocean freight contracts.

Commodity trading in India has a long history. In fact, commodity trading had started in India much before it started in many other countries. However, years of foreign rule and Government policies had caused the commodity trading in India to diminish. It was restarted recently.

At present, India has six national commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), National Multi-Commodity Exchange (NMCE) and Indian Commodity Exchange (ICEX), ACE Derivatives exchange (ACE) and Universal commodity exchange (UCX) apart from numerous regional exchanges.

Government had established regulatory body is Forward Markets Commission (FMC) in 1953. It was merged with the Securities and Exchange Board of India (SEBI) in September 2015.

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SEBI asks Commodity Exchanges to Set up Investor service Fund

SEBI has come up with comprehensive guidelines asking the Commodity derivatives exchanges to compulsorily set up investor protection and service funds.

Salient Highlights

The commodity exchanges should maintain separate bank accounts for maintaining the corpus of the IPF and the ISF.

ISF 

The Investor Service Fund (ISF) is aimed at providing minimum facilities at various investor service centres.

At the initial stage, the commodity exchange has to contribute at least Rs 10 lakh towards ISF. Subsequently, the commodity exchanges are required to transfer 1% of the turnover fees charged from its members on monthly basis towards the ISF.

IPF 

The Investor Protection Fund (IPF) of a Commodity Exchange should have a maximum of five trustees. Out of these, three trustees should be public interest directors and a representative from Sebi-recognised investor association. In addition, the commodity exchange’s compliance officer should be made part of the trust.

The IPF will comprise of all penalties levied and collected by the commodity exchanges except for the settlement related penalties.

The exchanges will have the freedom to fix suitable compensation limits in consultation with the IPF trust.

The exchanges can make use of the IPF corpus for investor education and other awareness programmes.

The trust will be responsible for the supervision of utilisation of interest on IPF.

SEBI

SEBI is the statutory regulator for the securities market in India established in 1988. It was given statutory powers through the SEBI Act, 1992. SEBI’s headquarters is in Mumbai, Maharashtra. SEBI’s mandate is to protect the interests of investors in securities, promote the development of securities market and to regulate the securities market.

The Key functions of SEBI are as follows: Regulating stock exchanges and other securities markets; Registering and regulating the working of intermediaries who are associated with securities markets in any manner; Registering and regulating the working of venture capital funds and collective investment schemes including mutual funds; promoting and regulating self-regulatory organizations and prohibiting fraudulent and unfair trade practices relating to securities markets.

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