Sebi tightens operating conditions for commexes

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The Securities and Exchange Board of India (Sebi) has stiffened the operating conditions for commodity exchanges.

In a letter to all commodity derivative exchanges, it said: “If there is no trading operation on the platform of any commodity derivatives exchanges for more than 12 months, then...(it) shall be liable to exit’. There were six national exchanges, of which three have suspended their trading. Two have completed 12 months of suspension and another will complete a year in May 2016.

Revising an earlier circular issued by the then regulator, the Forward Markets Commission, Sebi also directed all national commodity derivative exchanges to continuously ensure the turnover criteria of at least Rs 1,000 crore a year. Regional commodity exchanges (RCEs) shall ensure they have at least five per cent of the nationwide market share of the commodity traded principal on their platform. If national and regional exchanges fail to meet the above criteria for successive years, they shall be liable to exit.

The five per cent market share condition is new and expected to make things difficult for RCEs. Three such exchanges are active. For exchanges which have suspended operations and plan to reopen, Sebi said they "shall resume trading only after ensuring that adequate and effective trading systems, clearing and settlement systems, monitoring and surveillance mechanisms, risk management systems are put in place and only after taking fresh Sebi approval and complying with all other regulatory requirements”.

If any commodity derivatives exchange proposes to surrender its recognition voluntarily or whose recognition is proposed to be withdrawn, it must comply with some conditions. For instance, no alienation of any assets without prior Sebi approval. For asset valuation, the regulator will appoint an agency. When a stock exchange closes operations, it has to contribute up to a fifth of its assets (after tax) towards the Sebi Investor Protection and Education Fund. For commexes, Sebi will separately decide the proportion.

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