The Hindu Business Line : Membership in national bourses — FMC issues guidelines to regional commodity exchanges

THE Forward Markets Commission (FMC) on Thursday issued guidelines to the regional commodity exchanges for obtaining membership of national commodity exchanges.

Under the new guidelines, any regional exchange wishing to take membership of a national exchange should promote or float a subsidiary company to acquire membership rights of other national commodity exchanges.

The regional exchange has to make necessary amendments to their bye-laws, according to release issued by the commission.

The subsidiary company should be 100 per cent owned by the respective regional commodity exchange. The name of the subsidiary company should not contain the words "commodity exchange".

Also, the members of the parent commodity exchange should register as a constituent to be known as sub-brokers of its subsidiary company, to enable them to trade on commodities that are available on the national exchanges where the subsidiary company obtains membership.

The subsidiary company should not undertake any dealing in commodities on its own account - i.e., proprietary trading.

The subsidiary company should register only the members of the commodity exchange promoting the subsidiary company as its sub-broker and no other client/sub-broker should be entertained by the subsidiary company, the release said.

The trading exposure limit of the constituent (sub-brokers) should be based on the deposit received by the subsidiary company from the sub-brokers.

These exposure limits should not exceed the limits as prescribed by the national commodity exchange of which the subsidiary company is a member.

The subsidiary company should appoint a CEO who should not hold any position concurrently in commodity exchange (parent exchange).

The appointment, the terms and condition of service, the renewal of appointment, and the termination of service of CEO should be subject to prior approval of FMC.

The CEO of the subsidiary company should be a director on the board of subsidiary. The CEO should not be a sub-broker of the subsidiary company or the broker of parent exchange.

The parent exchange should be responsible for all risk management systems of the subsidiary company and should set up appropriate mechanism for the supervision of the trading activity of subsidiary company.