ANNEXE Government of India Ministry of Consumers Affairs, Food and Public Distribution Department of Consumer Affairs Shastri Bhavan

New Delhi
Guidelines on the Equity Structure of the Nationwide Multi Commodity Exchanges after five years of operation ∗

F. No. 12/1/2007-IT

Dated 29th July 2009

Preamble

The Commodity Futures Derivative markets were opened up in 2002 and have witnessed very rapid growth thereafter. The commodity exchanges have played a key role in their expansion. The Government recognized and licenced three Nationwide Multi

Commodity Exchanges (NMCEs) - MCX, NCDEX and NMCE – who have completed five years of their operations in the commodity derivatives market (CDM). The Forward Markets Commission has been issuing, from time to time guidelines and directions aimed at better governance, transparency and investor confidence in the CDM. 2. Recently, on May 14,2008, the Government has issued guidelines for setting up of a

new National Multi Commodity Exchange to further strengthen the existing infrastructure in CDM. In the said Guidelines, para No. 5.3 has set the framework for shareholding and clause (f) of the said para has provided for the revision of shareholding of a Nationwide Multi Commodity 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 National Commodity Exchanges after completion of 5 years of operations need to align their shareholding pattern with the shareholding pattern as specified below, within a period of one year 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 9th July 2010

otherwise not prohibited under section 17 of the Forward Contracts (Regulation) Act, 1952 will be converted into recognition in specific commodities as may be listed in the recognition notification 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 in exceptional cases on genuine grounds for a further period not exceeding one year. (Explanation: “National Commodity Exchange” means a demutualised Commodity Derivative Exchange with an independent professional management, an electronic trading platform, 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 not prohibited for trading u/s 17 of the said Act.)

This issue has been under the consideration of the Government for some time and it is now pleased to issue the following guidelines in this behalf.

Guidelines

3.

Government has powers to issue new guidelines.

Guidelines for conversion of

Regional Exchanges into National Commodity Exchange needs to be spelt out. This issue has been under the consideration of the Government for some time back and after revisiting and reviewing the current ownership structure of the existing National Commodity Exchanges, the following Guidelines are laid down:

3.1

All National Commodity Exchanges should have a paid up equity capital of atleast Rs. 50 crore and Networth* of atleast Rs. 100 crore as a going concern and on a continuous 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 less than 26%: i. ii. iii. Government Companies, as defined in the Companies Act 1956; Banks and Public financial institutions; 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 owning and operating warehouses; and iv. Warehousing Companies in the private sector having minimum five years’ standing in warehousing business and owning and operating warehouses in at least two states.

However, the total shareholding of the Government companies mentioned in sub paras (i) and (iii) above shall not be less than 10%.

3.3 ∗

No shareholder, except the original promoters/investors, at the time of recognition as an NCE, either individually or together with persons acting in concert with it, shall hold more than 15% of the paid up equity capital of the Exchange. For original promoters/investors this limit will be the maximum of 26%. In case the shareholding of each of the original promoters/investors including the Anchor-Investor falls below 15%, one of the shareholders including the new shareholders may be allowed by FMC to act as Anchor-Investor and to increase its equity shareholding to a maximum of 26%.

The shareholding of Stock / Commodity Exchange (s) will, however, be governed by the conditions contained in Para 3.4 of these guidelines.

(Explanation: “Anchor-Investor” is an investor who plays the lead role in managing the National Commodity Exchange.)”

Clause 3.3 amended vide F. No. 12/1/2007-IT, dated 9th July 2010

3.4 ∗ (a) The shareholding of any single Stock Exchange alongwith the persons acting in concert shall not be more than 5% of the subscribed and paid up equity capital of the said National Commodity Exchange. The cumulative shareholding of Stock Exchanges in the relevant National Commodity Exchange shall not be more than 10%.

(b)

The shareholding of any single Commodity Exchange alongwith the persons acting in concert shall not be more than 15% of the subscribed and paid up equity capital of the said National Commodity Exchange.

(c)

The cumulative shareholding of all Stock / Commodity Exchanges alongwith the persons acting in concert in the relevant National Commodity Exchange shall not be more than 20% at any given point of time.”

3.5

The shareholders of the Exchange shall not have any trading interest either as a trading member or as a client of the Exchange. The shareholding of a broker/member of any other commodity exchange shall not exceed 1% and the total shareholding of all such brokers/members taken together shall not exceed 10% of the paid up equity capital. They will also not hold any seat in the Management/ Board of the Exchange.

3.6

No non-corporate entity, apart from those covered by the preceding para 3.5, shall hold more than one percent of the paid up equity capital of the Exchange and the total of such holdings together with that of those covered by para 3.5 shall not exceed 25% of the paid up equity capital of the Exchange.

3.7

Allotment of shares to foreign entities must be in conformity with the provisions of the Press Note no. 2 of 2008 dated March 12, 2008 issued by the Department of Industrial Policy & Promotion, Government of India, subject to any changes therein made by the Government from time to time.

Clause 3.4 amended vide F. No. 12/1/2007-IT, dated 9th July 2010

3.8

It is obligatory on all shareholders of the Exchange to align the shareholding pattern, as per these present guidelines and guidelines that may be issued by the Government/ Forward Markets Commission from time to tome.

4

The Exchange shall confirm to the Commission in writing that the investors in whose

favour the divestment/fresh issue of equity is made, fulfill the criteria for ‘a fit and proper person’ as defined in the enclosed Note 2. 5. All disinvestments or fresh issue of equity shares of more than 1% shall be subject to

the prior approval of the Forward Markets Commission and before seeking such approval, the Exchange should ensure that the proposal satisfies the above requirements.

6.

As far as the existing National Commodities Exchanges are concerned, the last date

for compliance with the above guidelines (except for amended para 3.4) shall be 30th September 2010, which can be extended by the Forward Markets Commission upto 30th September, 2011 in exceptional cases on genuine grounds. Provided that the last date for compliance with the condition at para 3.4 would be 31st December, 2010 which could further be extended upto 31st March, 2011 by the Forward Markets Commission in exceptional cases on genuine grounds

( Brij Mohan ) Director(IT).

Note 1

Networth: The networth for the purposes of these guidelines will be computed as under:

1.

Paid up equity share capital Add

2. 3. 4.

Non-redeemable preference shares capital Share premium paid in cash Reserves and surplus ( excluding capital reserve, revaluation reserve, and such other reserves which have been earmarked for specific purposes and are not available for distribution) Less Loans and advances except for the ones given for the purposes of business of the Exchange. Investments in non-quoted companies for the purposes other than developing infrastructure for or in the Commodity Sector. Investments in the non-marketable securities. Investment in the quoted securities in excess of 10 % of total equity fund. Intangible assets acquired for cash for purposes other than the business of the Exchange.

5. 6. 7. 8. 9.

Note 2 CRITERION FOR A PERSON TO BE DEEMED TO BE ‘A FIT AND PROPER PERSON’

For the purpose of these guidelines, a person shall be deemed to be a fit and proper person if (i) such person has a general reputation and record of fairness and integrity,

including but not limited to – (a) financial integrity; (b) good reputation and character; and (c) honesty. (ii) such person has not incurred any of the following dis-qualifications (a) the person or any of its whole time directors or managing partners has been convicted by a Court for any offence involving moral turpitude or any economic offence, or any offence against any laws; (b) (c) an order for winding up has been passed against the person; the person or any of its whole time directors or managing partners has been declared insolvent and has not been discharged; (d) an order, restraining, prohibiting or debarring the person, or any of its whole time directors or managing partners from dealing in commodities / securities or from accessing the market has been passed by any

regulatory authority and a period of three years from the date of the expiry of the period specified in the order has not elapsed; (e) any other order against the person or any of its whole time directors or managing partners which has a bearing on the commodities market, has been passed by any regulatory authority and a period of three years from the date of the order has not elapsed; (f) the person has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; and (g) (iii) the person is financially not sound. If any question arises as to whether a person is a fit and proper person, the

decision of the Forward markets Commission in this behalf shall be final.

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