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Guidelines on Equity Structure Commodity Exchanges

Guidelines on Equity Structure Commodity Exchanges

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Published by: DealCurry on Sep 12, 2011
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09/12/2011

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ANNEXEGovernment of IndiaMinistry of Consumers Affairs, Food and Public DistributionDepartment of Consumer AffairsShastri BhavanNew Delhi
Guidelines on the Equity Structure of theNationwide Multi Commodity Exchanges after five years of operation
 F. No. 12/1/2007-IT Dated 29
th
July 2009PreambleThe Commodity Futures Derivative markets were opened up in 2002 and havewitnessed very rapid growth thereafter. The commodity exchanges have played a key rolein their expansion. The Government recognized and licenced three Nationwide MultiCommodity Exchanges (NMCEs) - MCX, NCDEX and NMCE – who have completed fiveyears of their operations in the commodity derivatives market (CDM). The Forward MarketsCommission has been issuing, from time to time guidelines and directions aimed at bettergovernance, transparency and investor confidence in the CDM.2. Recently, on May 14,2008, the Government has issued guidelines for setting up of anew National Multi Commodity Exchange to further strengthen the existing infrastructure inCDM. In the said Guidelines, para No. 5.3 has set the framework for shareholding andclause (f) of the said para has provided for the revision of shareholding of a Nationwide MultiCommodity Exchange (hereinafter referred to as “National Commodity Exchange” or “NCE”in short) after the completion of 5 years of operation in the CDM. Therefore, all the NationalCommodity Exchanges after completion of 5 years of operations need to align theirshareholding pattern with the shareholding pattern as specified below, within a period of oneyear failing which the concerned National Exchange will be liable to lose its national status.This would mean that its recognition for all commodities notified under section 15 or
As Amended vide F. No. 12/1/2007-IT, dated 9
th
July 2010
 
otherwise not prohibited under section 17 of the Forward Contracts (Regulation) Act, 1952will be converted into recognition in specific commodities as may be listed in the recognitionnotification and that too for specified period which will need to be renewed from time to time.The said period of one year may be extended by the Forward Markets Commission inexceptional cases on genuine grounds for a further period not exceeding one year.(
Explanation:
“National Commodity Exchange” means a demutualised CommodityDerivative Exchange with an independent professional management, an electronic tradingplatform, all India operations and recognized under section 6 of the Forward Contracts(Regulation) Act, 1952 for trading in all commodities notified u/s 15 or otherwise notprohibited for trading u/s 17 of the said Act.)This issue has been under the consideration of the Government for some time and itis now pleased to issue the following guidelines in this behalf.
Guidelines
3. Government has powers to issue new guidelines. Guidelines for conversion ofRegional Exchanges into National Commodity Exchange needs to be spelt out. This issuehas been under the consideration of the Government for some time back and after revisitingand reviewing the current ownership structure of the existing National CommodityExchanges, the following Guidelines are laid down:3.1 All National Commodity Exchanges should have a paid up equity capital of atleastRs. 50 crore and Networth* of atleast Rs. 100 crore as a going concern and on acontinuous basis.(* Note: Networth is defined in the enclosed
Note 1
)3.2 The total shareholding of the class of entities mentioned below should not be lessthan 26%:i. Government Companies, as defined in the Companies Act 1956;ii. Banks and Public financial institutions;iii. Government Companies as defined in the Companies Act, 1956,Cooperative Societies as defined in the Societies Act and Federations
 
manufacturing or marketing agri inputs or marketing agri-produce or owningand operating warehouses; andiv. Warehousing Companies in the private sector having minimum five years’standing in warehousing business and owning and
 
operating warehouses inat least two states.However, the total shareholding of the Government companies mentioned in subparas (i) and (iii) above shall not be less than 10%.3.3
 
No shareholder, except the original promoters/investors, at the time ofrecognition as an NCE, either individually or together with personsacting in concert with it, shall hold more than 15% of the paid up equitycapital of the Exchange. For original promoters/investors this limit willbe the maximum of 26%.In case the shareholding of each of the original promoters/investorsincluding the Anchor-Investor falls below 15%, one of the shareholdersincluding the new shareholders may be allowed by FMC to act asAnchor-Investor and to increase its equity shareholding to a maximumof 26%.The shareholding of Stock / Commodity Exchange (s) will, however, begoverned by the conditions contained in Para 3.4 of these guidelines.(Explanation: “Anchor-Investor” is an investor who plays the lead role inmanaging the National Commodity Exchange.)”
Clause 3.3 amended vide F. No. 12/1/2007-IT, dated 9
th
July 2010

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