The Hindu Business Line : FMC initiates performance audit of exchanges' members

The Forward Markets Commission (FMC) has initiated a process of performance audit of members of the three national exchanges through independent auditors. The focus would be on compliance issues with reference to the requirements of the FMC and the exchanges.

The panel of auditors undertaking this task has already been drawn up. The first phase of audits would be conducted in the month of June, according to an FMC news release.

Pro-Account trade

On Proprietary Account (Pro-Account) trade, the FMC said it had come to the notice of the commission that members of exchanges had been trading in proprietary account (Pro-Account) from more than one location.

This has the possibility of being misused for executing client trades by the members. "This practice is not only in violation of various rules and bye-laws but has the potential to put the exchange under systemic risk as the margin payable for client trade in such cases is avoided due to netting of the positions at the members' end as all trade is being done in single account (pro-account only),'' the release said.

In order to restrict such possibilities, FMC has issued instructions to the exchanges that facility of placing orders on "Pro-Account" through trading terminals should be extended only at one location of the member as specified/required by the said member. Further, at that location, the member cannot trade in Pro-Account from more than two specified terminals.

Secondly, trading terminals other than the (above mentioned) one location should have a facility to place orders only for and on behalf of a client by entering client code details as required/specified by the exchange/FMC.

`At the earliest'

The measures are required to be implemented at the earliest and compliance given by the exchanges to FMC by May 31, 2006.

In case any member requires the facility of using "Pro-Account" through trading terminals from more than one location, such member should submit an undertaking to the exchange stating the reason for using the "Pro-Account".