The crisis at the National Spot Exchange have brought things to a head, and the Forward Market Commission, which regulates commodity exchanges, is taking a hard line when it comes to compliance with its directives.
CNBC-TV18 learns that the commodities exchange regulator has been working on plugging regulatory gaps in these exchanges for a few months now. The hue-and-cry created by the NSEL crisis has only strengthened the FMC's resolve to crack the whip to ensure that all 6 commodity exchanges in the country conform to its ‘fit & proper’ management guidelines.
Also read: NSEL sacks MD Sinha; bourse payout fails
This explains why the FMC has refused an extension of the August 31st deadline for exchanges to restructure their boards.
So exchanges have less than 2 weeks to ensure that:
- At least half the board seats are independent directors
- At least 4 of the board members are nominated by the regulator
- All board members be approved by the regulator
- and no board member be above the age of 70.
This last rule will directly affect MCX, as Venkat Chary, the current Non-executive Chairman, and CM Maniar, a director, will have to step down.
The new rules also state that the regulator will nominate the chairman of a commodity exchange, control the audit and compensation committees and play a prominent role in the selection of an MD & CEO who is below the age of 60.
And then, there's the toughest rule of all- the treatment of margin money. The FMC's 2007 circular says that all margins paid by brokers should be part of the Settlement Guarantee Fund and income from these margins should be adjusted against the margins paid by the brokers.
Now this is a rule every commodities exchanges is flouting. NCDEX, for instance, says is seeking further clarification on these guidelines. Auditors of MCX, meanwhile, have raised concerns about the practice of crediting such margins to 'Other Current liabilities', and income from these margins to the Statement of Profit and Loss.
"We have been informed that the company has made various representations to the FMC and is awaiting their response," NCDEX said.
Experts say that if the FMC sticks to its guns on the matter, the exchange will have to reverse all the income earned, meaning profits will take a hit.