Sebi streamlines commodity derivatives exchange norms

The Securities and Exchange Board of India (Sebi) on Thursday asked regional commodity derivatives exchanges to revamp their ownership structure on the lines of stock exchanges, among guidelines on the networth, board structure and surveillance functions of all commodity exchanges.

These exchanges must change from the current model in which broker members own and operate them to a shareholder-owned model—called demutualization—and become companies, within three years.

Demutualization ensures the interests of the exchange and the trading rights of brokers on the exchange do not come into conflict. India’s stock exchanges demutualized and turned corporate entities several years ago.

Sebi said all commodity derivatives exchanges must transfer the functions of clearing and settlement of trade to a separate clearing corporation within three years.

The market regulator ordered every commodity derivatives exchange to immediately put in place adequate surveillance systems to monitor positions, prices and volumes to ensure market integrity till online real-time surveillance systems are set up and operationalized by such exchanges.

Further, Sebi said akin to stock exchanges, every commodity derivatives exchange will need to have a networth of at least Rs.100 crore. While national commodity derivatives exchanges are required to comply with the order by 5 May 2017, regional ones are required to do so within three years, Sebi said. For this, every commodity exchange has been directed to submit a plan approved by its shareholders to Sebi within six months.

The regulator said that no commodity derivative exchange will be allowed to distribute profits to shareholders until the required networth is achieved.

Also, existing independent directors at national commodity derivatives exchanges will now be deemed to be public interest directors. The existing directors on the governing boards of commodity derivatives exchanges who are not in compliance with Sebi’s existing norms will be allowed to continue for a maximum period of one year and all new appointments will be governed by Sebi.

In order to ensure a smooth and transparent functioning, Sebi asked every national commodity derivative exchanges to constitute an oversight committee for product design, within three months. Alongside, such exchanges will need to form an advisory committee and a statutory committee within a year, Sebi said.

Source : Livemint