FMC asks bourses not to allow schemes with assured returns

In order to protect investors in the commodity futures market after the NSEL payment crisis, regulator FMC today directed bourses not to allow its members to offer any scheme that lures investors with a promise of assured returns and portfolio management services.

The Forward Markets Commission (FMC), which has recently been put under the Finance Ministry, has warned that strict action would be taken against the member found engaged in offering portfolio management services (PMS).

FMC has found that PMS activities are taking place in large number in commodity futures market putting small investors at risk even as the regulator had banned such activities in 2006. It has also directed national exchanges not to allow "any activity in the nature of a promise of assured returns after certain fixed time period or assured profits by the member or profit sharing activity".

It has also barred national bourses from allowing any activity without executing member-client agreement and presenting client with a risk disclosure document. "Any member who will be identified as having indulged in offering PMS will be liable for strict disciplinary actions like suspension from membership and deactivation of his terminal. In addition, the exchange may also prescribe a deterrent monetary penalty in this regard," FMC warned.

Six national bourses - MCX, NCDEX, NMCE, ICEX, ACE and UCX - have also been told that any activity without proper order from client for managing these accounts/executing trade is not permitted. That apart, the FMC has disallowed any advertisement made by the member highlighting only the benefit of futures market without mentioning the risk involved.

"Any other activities which is ambiguous or misleading the client in any way" is also not permitted, the regulator said. The government and regulator are concerned about the investors doing business in the commodity futures market after the payment crisis of National Spot Exchange Ltd (NSEL) surfaced last month.

NSEL is facing the problem of settlement of Rs 5,600 crore due to 13,000 investors after it closed down its operation following violation of certain rules.