The Hindu Business Line
Commodity participants’ body to create investor database to rein in defaulters
The Commodity Participants’ Association of India plans to create a registry of individual clients trading on the exchange platform to prevent defaulting members of one exchange moving to another.
It has been observed that some clients who were banned in the recent castor-seed crisis in NCDEX had moved to other exchanges in the absence of a common platform to assess the trading credentials of clients.
Since there is hardly any differentiation in the commodity contract specifications of the five commodity exchanges, especially that of agriculture commodities, a shift in business from one exchange to another impacts the exchange rather than the clients.
The association, which has a record of members trading on the exchange platform, will now create an electronic database of individual clients of trading members, a source said.
Of late, he said, some clients who were banned from trading in one exchange for payment defaults, have been moving to another exchange to continue trading without any restrictions.
The online database would help exchanges access the trading track record of clients based on their PAN numbers, and ensure that they do not go exchange shopping.
The proposal will be taken up at SEBI’s Commodity Risk Management Committee meeting next month, for legal validity of the database. Once approved, the proposal will be placed before SEBI’s board for final approval.
After it becomes a regulation, exchanges will have to mandatorily run through the database to check the credentials of clients, before allowing them to trade, he said.
Sources said the proposal was part of a SEBI move to align regulations with that of the International Organisation of Securities Commissions and ensure market integrity. Last month, SEBI refused to ban trading in castor-seed contract on NCDEX despite a payment default by some of the trading members.
The crisis-ridden NCDEX had to square off castor-seed contracts worth ₹735 crore of the defaulting clients, using the contract tear-up option for the first time ever. It also auctioned 370 tonnes of buy positions to avoid a potential default during the October contract settlement.