Commodity derivatives: NCDEX's clearing corporation set to go live in Sept

NCDEX is in the final stage for the launching of its clearing corporation

The markets regulator is working to expand the width and depth of the commodity derivatives market.

Among the measures is a clearing corporation which is separate from an exchange’s trading function, allowing equity and commodity exchanges to enter each other’s area, inviting proposals for commodity index futures and rules for entry of foreign traders.

These were mentioned by S K Mahanty, full-time member of the Securities and Exchange Board of India. He was speaking at the launch of the country’s first clearing corporation for commodities, floated by the Multi Commodity Exchange (MCX, as a 10 percent subsidiary, with Rs 1.5 billion net worth).

He said stringent norms for meeting all types of scenarios, including default management and liquidation policies, have been prescribed for commodity clearing corporations. The new MCXCC will do its first clearing on Monday, for the trades that will happen on Friday.

The National Commodity and Derivatives Exchange (NCDEX) is in the final stage for the launching of its clearing corporation. It will go live, said Mahanty, next month. Another commodity exchange, ICEX, plans to use the services of a clearing corporation floated by the Metropolitan Stock Exchange.

Mahanty said the norms for commodity clearing had been so designed that if there is default in one commodity, this could be managed without impacting other commodities.

MCXCC is starting with a settlement and guarantee fund of Rs 2.3 billion, which MCX is transferring to it.

The MCX repository (MCX has 24 percent equity in the repository set up by CDSL, a record-keeping agency for commodities, will be active from November. Along with the NCDEX repository, it would start issuing electronic negotiable warehouse receipts for agricultural commodities.

Mrugank Paranjape, managing director of MCX, later said at a media briefing that they were talking to the warehouse regulator in this regard.

He added they planned to launch a deliverable metals contract in the coming months.

From October 1, stock exchanges would be authorized to start a commodity derivatives segment. BSE is prepared to launch one from that date, as is the National Stock Exchange.

Entry of mutual funds and portfolio management services into the segment will take some time, said Paranjape; however, the process is on. A working group of all stakeholders has given a report and the relevant arrangements and regulations areas expected to be in place within the next one to two months. Mahanty says regulations for allowing hedging by foreign companies having exposure in India are in the final stages.

Clearing Corp

The work of clearing corporations in the commodity segment begins once a trade is done, from collecting of margins till settlement.

According to a media note, MCXCC will provide counter-party risk management and post-trade services. It will be the central counter-party (a legal first for MCX) for all trades on the exchange. The clearing corporation will be responsible for the collection of margins from the members, effect pay-in, and pay-out, of funds and commodities. Members may choose among 13 clearing banks for fund settlement.

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