FMC registration to be made mandatory for commodity market intermediaries

The finance ministry has proposed changes in the Forward Contracts (Regulation) (Intermediaries) Rules, 2014, in order to impart greater authority on commodity market regulator Forward Markets Commission (FMC), as part of strengthening regulatory framework.

Accordingly, it has proposed that a commodity market intermediary has to mandatorily obtain a certificate of registration from the Forward Markets Commission, without which no person will be allowed to act as intermediary.

Any person acting as intermediary immediately before the notification of these rules when registration was not required, can continue being an intermediary for three months from the date of issuance of detailed registration and other procedural requirements by the FMC or if  an application for such registration within the three-month period, till the disposal of such application.

A person seeking to act as intermediary should apply for registration with the FMC through a recognised association of which he or she is a member and the application should be in conformity with the criteria as may be specified by the commission from time to time.

The recognised association should verify the application and certify that the applicant is eligible for registration as per criteria specified by the FMC and forward it to the commission at the earliest, and not later than 30 days from the date of its receipt.

An intermediary should furnish all relevant information to the commission required for the grant of registration, within the time specified by the commission.

FMC will prescribe detailed procedure for registration of intermediaries, including the procedure for refusal to grant the registration and its effects.

The commission may issue further directions and may also impose such conditions as may be necessary, in the interest of the clients of the said intermediary and commodity market, while communicating such refusal. In any case, the commission will observe principles of natural justice before refusing to grant registration, the ministry said in an official release.

Any refusal to grant certificate of registration to an existing intermediary may not affect the validity of any contract entered into or made with or through such intermediary on or before the date of communication of such refusal, FMC said.

FMC will, however, make provisions for closing out of any pending contracts in commodity derivatives.

An intermediary may surrender his registration and the commission may cancel the registration upon such surrender subject to the following:

• There are no enforcement proceedings contemplated or pending against such intermediary;
• There are no outstanding trade positions to be settled at the recognised association of which it is a member; and
• The recognised association concerned has no objection to such surrender and cancellation.

For disposing off a request, the concerned intermediary should satisfy the commission the factors that led to it as also the arrangements made by the intermediary for maintenance and preservation of records and other documents required to be maintained under the relevant regulations, including redressal of investor grievances, transfer of records, funds or commodities of its clients, arrangements made by it for ensuring continuity of service to the clients and defaults or pending action, if any.

The commission may impose further conditions upon the intermediary or its officials as it deems fit for protection of the interest of investors or its clients or the commodities market and such intermediary and its officials should comply with such conditions.

All intermediaries should comply with such general obligations and responsibilities, including the code of conduct, as may be specified by the commission and should maintain, preserve and present to the commission such books of accounts, documents and records as may be specified by the commission.

Every intermediary should appoint a compliance officer and any other responsible officer, as may be specified by the commission for ensuring compliances of the statutory requirements by the intermediary.

FMC may appoint one or more persons, including a qualified auditor, as inspecting authority to undertake inspection of the books, accounts, records, including telephone records and electronic records and documents, of an intermediary inter alia to verify as to whether the affairs of the intermediaries are being conducted in accordance with the provisions of Act, rules, regulations, bye-laws, guidelines, instructions and directions issued thereunder.

FMC proposed to prescribe detailed procedure that may be adhered generally for the purposes of such inspections.

FMC may consider cancellation or suspension of registration and other penal actions in cases where an intermediary fails to comply with any conditions subject to which a certificate of registration has been granted to it or contravenes any of the provisions of the Act, rules made thereunder, directions, guidelines, instructions or circulars issued thereunder.

The commission may cancel or suspend registration of an intermediary or prohibit or debar the intermediary from taking up any new assignment or contract or launch a new scheme for the period specified in the order as it may deem fit.