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Stockbrokers are also eager to enter commodities exchange in order to supplement their income.

Chennai , Aug. 13

THE Securities and Exchange Board of India (SEBI) is favourably inclined towards the entry of stockbrokers into commodities exchanges. Such a development would be significant for the nationwide on-line commodity exchanges that are to commence operations shortly.

The National Commodity & Derivatives Exchange (NCDEX) has sought SEBI's permission to allow stockbrokers to apply for membership, said Mr P.H. Ravikumar, Managing Director and CEO, at a press conference on Tuesday. He said SEBI was positively inclined to the request, but a formal confirmation was awaited.

Mr Ravikumar said the plan was to have about 250 members over a year, of which stockbrokers were expected to comprise 40 per cent.

The Securities Contracts Regulation Act (SCRA) — the apex law governing securities trading in stock exchanges — disallows brokers to dabble in other broking business. Following the recommendations of the K.R. Ramamoorthy committee, SEBI was inclined to permit stockbrokers to diversify into commodities exchange if the same was carried out by a separate legal entity, said Mr Ravikumar.

Stockbrokers are also positively disposed of to enter commodities exchange in order to supplement their income, he said. He said NCDEX's estimate of a trading-cum-clearing member's (TCM) cost structure pointed to a short gestation period for break-even.

Mr Ravikumar pointed out that many stockbrokers could trace their heritage to commodities broking. Following a Central Government clampdown on commodities trading in the 1960s, the business began to ebb.

Support for the re-entry of stockbrokers into commodities brokers came from a committee that examined different dimensions to commodities trading. The committee recommended that they "be allowed in a separate category", said Mr Ravikumar.

Even if SEBI clears the participation of stockbrokers, regulations unique to a few individual exchanges such as Bombay Stock Exchange (BSE) may have to be amended before stockbrokers can enter commodities broking. Brokers' affiliated to the largest stock exchange in India, National Stock Exchange (NSE), do not face obstacles outside of the SCRA.

NCDEX would disallow transfer of membership rights for a price. In contrast, another nationwide on-line commodities exchange, The Multi Commodity Exchange (MCX), allows membership rights to be treated as a commodity.

NCDEX also has higher capitalisation norms for members. "We want to bring good and serious players in the market," explained NCDEX officials in response to a query on the capitalisation norms.

NCDEX is promoted by ICICI Bank, Life Insurance Corporation, National Bank for Agriculture and Rural Development (NABARD) and National Stock Exchange (NSE). It expects to commence trading in about 10 commodities including cotton and bullion.

Our Bangalore Bureau adds: NCDEX plans to start operation by mid-October and would set up a Rs 40 crore Settlement Guarantee Fund. "We will start anywhere between Dassera and the Diwali", Mr Ravikumar said.

The technology platform was being ready now and options trading were likely to be legal after Parliament passes the Bill in its winter session, Mr Ravikumar said. "We will carry out mock trading in September", he said, adding that the exchange expects to add on 250 members in the first year of operations.

Initially, the exchange hopes to report daily turnover to the tune of Rs 70-100 crore, he said. Currently, the organised commodity trading market is close to Rs 700 crore in the country. There is a potential to swell the size by three-four times, Mr Ravikumar said.

The exchange plans to increase the depth of the market through greater participation from smaller and mid-size towns. "We are in talks with local crop associations, rural co-operatives" to strengthen participation, he added.

NCDEX plans to start trading in nine commodities initially and then branch out into commodity indices, energy products, weather derivatives.

The exchange has also finalised membership criteria under which a trading-cum-clearing membership (TCM) can be obtained at a total cost of Rs 31 lakh and a networth of Rs 50 lakh while professional clearing membership (PCMs) can be obtained at a cost of about Rs 51 lakh on a networth of Rs 50 crore. NCDEX will allow membership to any person/association of persons/partnerships/co-operative societies/banks/corporates/foreign individuals, firms etc., who is/are above 21 years of age are eligible to become members of the exchange.

In case of TCMs and PCMs, the interest-free cash security deposit would be Rs 15 lakh and Rs 25 lakh, respectively.

For both, the collateral security deposit would be Rs 15 lakh and Rs 25 lakh, respectively, annual subscription charges would be Rs 0.50 lakh and Rs 1 lakh, respectively and advance minimum transaction charge would be common for both at Rs 0.50 lakh.

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