SEBI’s networth norms may nudge farmers out of NCDEX

Suresh P Iyengar Mumbai | Updated on January 23, 2018


Commodity market membership and trading charges are aligned to that of equity markets

Farmers’ collectives selling their produce directly on the online forward platform of NCDEX would be affected with the Sebi making it mandatory for members (brokers) to maintain a networth of ₹1 crore and an annual deposit of ₹50,000 by end-November.

FPOs hit

This apart, members will incur annual regulatory charge of ₹50,000 and one-time registration fee of ₹25,000. At present, there are 20 FPOs (Farmer Produce Organisation) registered with NCDEX for trading in the forward segment while another nine applications are pending with the exchange. It has put 63 applications on hold following the latest development.

In order to encourage farmer participation in the online commodity trading, NCDEX offered Commodity Participant Membership to the Farmer Produce Organisation, promoted largely by NGOs (non-government organisations) for nominal charges of ₹5,000 without any bank guarantee or annual fee.

However, with the merger of Forward Markets Commission and Sebi, the commodity market membership and trading charges were aligned to that of equity markets.

“FPOs may find the new norms daunting and may find it difficult to seek membership of commodity exchanges, but they have to comply. We will seek guidance from SEBI on how the markets can be made more inclusive for farmers,” said an NCDEX official.

As of October 7, the exchange logged total trade worth ₹117 crore in the forward platform.

Uncertain future

Madhya Pradesh-based RamRahim Pragati Producer Company, owned by 2,662 women farmers, is hoping that SEBI would do something to accommodate them in the forward markets.

“While the SEBI encourages retail investment in equities, it should facilitate farmers’ participation in commodities. The commodity market belongs to farmers as much as the capital market is for retail investors,” said Raghav Raghunathan, head of operations at RamRahim Pragati Producer Company.

In 2013, the company kept procuring from farmers and tried to offload it at later stage. Unfortunately, prices crashed by the time it decided to sell. Last year, in order to minimise the risk, the company sold soyabean on the futures market at ₹4,800 a quintal and in 20 days later the prices crashed to ₹3,400, said Raghunathan, who is working with the company after graduating as a Metallurgical Engineer from NIT-Karnataka, Surathkal.

Inspired by RamRahim, another 60 companies are firming up plans to take position on the forward and futures markets, he said. The exorbitant cost to trade through brokers has made companies such as RamRahim to push for commodity participant membership.

Asked whether farmers can take the risk of trading in online commodity platform, Raghunathan said farming is the most risky business in the country going by the recent weather vagaries and subsequent loss incurred by farmers in the last few months.

“I definitely do not encourage speculation, but what is wrong if they can sell a part of their produce on the futures market in advance,” he said.

Published on October 26, 2015

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