Regularizing Pro-Trading for Commodity Brokers

The merger of Forward market commission (FMC) with Security Exchange Board of India (SEBI) has enlarged the scope of market regulation for SEBI by bringing commodity derivative market into its domain. Since merger of two regulators in September 2015 in an attempt to align commodity market with equity market, SEBI has been taking several initiatives. In line with this objective, of late SEBI has issued yet another circular dated 25th April 2016 for mandating Commodity Derivative Brokers to disclose their proprietary trading and details of pro-account trading terminals to its clients.
Discloser of proprietary trading
For fulfilling the purpose of increased transparency in dealings between the commodity broker and their clients, the provision of SEBI circular (Dated 19th Nov. 2003) are extended to commodity derivative markets. The provisions of the circular requires that every broker shall disclose to his client whether he does proprietary trading as well or not. The commodity brokers are now required to disclose the above information within one month from date of this circular to its existing client and same shall be disclosed upfront in taking up any new assignments from new clients. In case of commodity brokers who was earlier not involved in the proprietary trading, but choose to do it later, then he shall disclose such intentions to his clients. The commodity derivative exchange are further required to amend their bye- laws in order to incorporate requirements of these disclosers mandated by circulars.
Discloser of Pro-account trading terminals
In order to monitor and to further regulate the pro-account trading the provision of SEBI circular dated (27TH AUG. 2003) are extended to commodity derivative trading. According to the requirements of the above dated SEBI circular the facility of pro-account trading shall be available through trading terminal at identified location only and the trading terminals located at a place other than identified location shall be utilized only for placing orders on behalf of clients. If in case the broker requires the pro-account facility to be extended to it from multiple locations then broker shall submit an undertaking to exchange and the exchange shall after proper due diligence may extend such facility. The same provisions are now mandated for Commodity derivative exchanges as well and they are required to amend their bye-laws in conformity to above provision.
In broad sense it could be viewed as an appreciable move by SEBI to regulate an important player of commodity derivative market and to lower the possibility of fraud in the market.
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