The Forward Markets Commission released a notification dated 6 May, 2014 regarding Ownership, Net worth, Fit and Proper Criteria etc. of the Nationwide Multi Commodity Exchanges (NMCEs), to be made applicable with immediate effect. The revised norms are aimed at diversifying the ownership of commodity derivative exchanges and enhancing the presence of institutional investors in them. The FMC has directed all NMCEs to bring their rules in accordance with the revised norms within 45 days from the date of receipt of the directions and to report compliance of the same to the FMC by 23 June, 2014. The revised norms appear to have been made in light of the Rs. 5600 crore payment crisis at National Spot Exchange Limited.

As per the revised norms, a commodity exchange shall have a minimum net worth of Rs. 100 crore at all times and at least 51% of the paid up equity share capital shall be held by the public. Governance norms have been made stricter, for instance, trading and clearing members of the exchange cannot be appointed on the governing board of a recognized commodities exchange. Further, an individual promoter cannot hold more than 5% in any commodity exchange, as against the earlier permissible limit of 26%. Moreover, to encourage domestic exchanges and banks to hold stakes in domestic commodity exchanges, the combined holding of non-residents has been limited to 49%. The notification states that any person who ceases to be a 'fit and proper person' will have to divest his shareholding and shall not have any voting rights till his shares are sold.

The revised norms which seek to enhance public trust and participation in exchanges, will significantly impact the impending sale of FTIL's 24% stake in MCX. FMC had declaredon 17 December, 2013 that FTIL was unfit to run the exchange and therefore FTIL has to divest its stake within the time allotted. The new norms may result in fewer eligible suitors for FTIL's stake in MCX and thereby impact the price at which the deal would be concluded. Further, since a person resident outside India cannot acquire or hold more than 5% of the paid-up equity share capital in a recognized stock exchange, potential foreign bidders may not be able to buy over 5% in MCX.

The revised norms also provide that certain categories of investors such as stock exchange, depositories, banks, insurance companies and PFIs may individually or together with PAC hold upto 15% in commodity exchanges. Such limits of 5% or 15% as prescribed by the revised norms will restrict ownership of exchanges and act as entry barriers for entities which have the capital and expertise to set up new exchanges.

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Date:September 29, 2015