The Mess in Commexes

Sucheta Dalal 23 July 2014

Indian Commodity markets are among the worst-regulated. Will the finance minster ask some questions?

The repercussions of the Rs5,600-crore scam at the National Spot Exchange Limited (NSEL) and the commodity transaction tax continue to be felt across the set of badly regulated commodity futures exchanges. On 16th July, just 18 months after its launch, UCX (Universal Commodity Exchange), a company promoted by Ketan Seth of IT People, with large business interests in Dubai, announced its closure. Earlier, the Indian Commodity Exchange had shut shop.

New bourses for commodity futures trading were permitted after a ban of several decades following excessive and damaging speculation. Yet, no lessons seem to have been learnt. These bourses were cleared without proper scrutiny by a weak regulator—the Forward Markets Commission (FMC). In most cases, a tie-up with public sector entities, or large corporate houses, was considered good enough to lend legitimacy to unknown promoters.

Just as the NSEL was discovered to have lent money to group entities, in UCX too, promoter Ketan Seth had reportedly withdrawn part of his equity contribution in the form of loans to group companies.

Now, when trading turnover of the entire market has crashed 65% in the first quarter of this year, the regulator has allowed the bourse to ‘suspend’ operations. Will this allow them to clean up their act without attracting public notice and wait for better times to restart? Clearly, there is a lot that needs to be set right with commodities trading, starting with the role of the regulator and the quality of its due diligence in licensing six new bourses as well as framing their rules and regulations. India has six national commodity exchanges and 14 regional ones.

The Modi government, which has promised us better governance, may want to direct FMC to stop, clean up and shut down a few. It would also be opportune to bring uniformity in the rules governing equity holding, suitability of promoters and governance structures across equity, commodity and currency derivatives markets.

Comments

User

Dayananda Kamath k

1 decade ago

now it is time to apply fit and proper principle to regulators and the authorities who approved appointed them. commodities market are the one responsible for the artificial inflation in india. what is the need for so many commodities exchange in india, and allowing every sundry person to be a paticipent in the same. it is only to manipulate and swindle. the particepents should be only those who deal in these commodities. future market is only for hedging.but it has become primery market.

Parimal Shah

1 decade ago

It seems these were promoted in the first place to benefit those with wasted interests and therefor the regulation intentionally was kept in limbo.
-Parimal