Rs 500m capital sought for commodities exchanges

- POST REPORT, Kathmandu

Jul 15, 2014-

Securities Board of Nepal (Sebon) is planning to make it mandatory for commodities exchanges to have a paid-up capital of Rs 500 million under a proposed Act.

The regulator’s move aims at limiting the number of commodity exchanges in a certain area. The country does not have an Act and regulation to govern the commodities market.

Sebon Spokesperson Niraj Giri said they have prepared a final draft of the Act, which has fixed standards for brokers in the commodities market. “However, the paid-up capital requirement will be finalised after holding consultations with the Finance Ministry,” he said.

There are around half dozen commodities market brokers. However, due to an absence of an Act to govern them, there is no uniformity in commodities traded, the nature of contracts, margin, commission and fees among the exchanges. After irregularities were seen in the sector two years ago, the governmen-t asked Sebon to draft the Act.

Earlier, a study carried out by Sebon had also revealed many malpractices in the sector, with more than 80 percent of the investors losing their money. According to the study, the combined investment of six exchanges and their agents stand at Rs 250 million. Giri said most of these brokering agencies lack necessary infrastructures and capital back up. “As these agencies operate on advance information technologies, a high paid-up capital is necessary,” he said.

Giri said the provision also aims at encouraging the existing brokering companies to go for mergers as the proposed Act envisions only two-three such agencies in the commodities market.

The commodities market is currently being operated as a spot market which fails to predict the demand and supply situation of a particular commodity in the domestic market. The proposed Act talks about allowing only “forward contract”, which allows predicting demand and supply and fixing future prices of commodities through contract between trading parties.

Mukti N Shrestha, deputy director at Sebon and a member of the Act drafting committee, said the provision of spot-based commodity exchange has not been given priority as there were no required infrastructure and laws related to warehouse, delivery mechanism and quality assurance.

“The absence of a warehouse Act in particular has barred us from allowing operating spot market,” he said.

Among other provisions the proposed Act envisions include establishing a separate operator like the Nepal Stock Exchange. Speculative trading in commodities like precious and industrial metals, petroleum products and agricultural goods, among others, will be the major activity at commodities exchanges, according to proposed act.

Published: 16-07-2014 09:26

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