Home / Market / Mark-to-market /  FMC gives commodity bourses extra time to register their warehouses

Mumbai: Commodity markets regulator Forward Markets Commission (FMC) has given six national commodity exchanges time till 30 September to register their warehouses with the Warehousing Development and Regulatory Authority (WDRA).

FMC had earlier given time till 31 December 2013 for the national commodity bourses—Multi Commodity Exchange of India Ltd, National Commodity and Derivatives Exchange Ltd, National Multi Commodity Exchange of India Ltd, Indian Commodity Exchange Ltd, ACE Derivatives and Commodity Exchange Ltd and Universal Commodity Exchange—to register their warehouses with the WDRA and receive its accreditation.

The FMC directive to the exchanges on Tuesday said that it had been “brought to the notice of the Commission that though about 300 warehouses have applied for registration with WDRA, the process of inspection and registration of warehouses with WDRA is taking time and as a result, market participants are facing difficulty since adequate warehousing space is not available at some of the locations".

FMC also said the exchanges were finding it difficult to find new warehouses that meet WDRA norms although many of the agricultural commodities traded on exchanges have already started arriving.

In the wake of the payments crisis at the National Spot Exchange Ltd (NSEL), FMC in a circular on 30 August had made it mandatory for all warehouses to register and get accredited with WDRA. FMC had also directed all the exchanges to accredit only these registered warehouses.

Without mentioning any exchange, FMC had said “of late, it has been observed that some of the exchanges have issued circulars in which conscious efforts have been made to evade their prime responsibility of ensuring quality and quantity of commodities as per the prescribed contract specification, and to pass on the entire onus to the warehouse service providers, which is not correct".

FMC also said the warehouse service providers should be well equipped to comply with its conditions as warehouses have a critical role in trading and settlement on the commodities market.

Irregularities at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These, too, were suspended a week later. The closure of trading may have been prompted by an instruction from the ministry of consumer affairs asking the exchange not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.

NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading. It later emerged that all the trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.

The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.

On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single complete payout since.

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