commodities market regulation

Commodities Exchange Market Regulation comes into effect

Published On: November 28, 2017 04:00 AM NPT By: Republica


Six categories of commodities to be allowed to trade

KATHMANDU, Nov 28: Securities Board of Nepal (Sebon) is allowing investors to trade six different products in the commodities exchange market of the country. 

The Commodities Exchange Market Regulation that came into effect from Saturday lists six categories of commodities that can be traded in the commodity exchange market. These categories include agro, metal, precious metal, minerals and crude, oil and other products. There are various products under these categories that can be traded in the commodities exchange markets. 

Similarly, the board can add new commodities in the lists that can be traded in the exchange market as per the requirement. The commodities exchange should first prepare the contract of commodities and get it registered with the board before trading them in the market.

The new regulation for the commodities exchange market has come in line with the Commodities Exchange Market Act, 2017, which aims to bring commodities exchange market under the regulatory ambit. 

Among others, the regulation lays down processes, conditions and standards for companies to operate commodities exchange market, warehouse, clearing and settlement, and brokerage firm.  According to the regulation, the company interested to set up commodities exchange market should get the letter of Intent (LoI) from the board and set up minimum infrastructure within 180 days of getting the LoI to be eligible to get the operation license. 

A shareholder is not allowed to own more than 5 percent of share in the company running the commodities exchange, according to the regulation. Similarly, a lock-up period of five years has been fixed for promoters of commodities exchange, while shareholders should seek pre-approval of the Sebon to offload their ownership after three years. Foreign company can be brought in the commodities exchange as a strategic partner. Foreign firms having working experience of three years can own a maximum of 51 percent of shares.

EXISTING EXCHANGES SHOULD ALSO GET LICENSE

According to Sebon officials, commodities exchanges which are currently in operation should also get license under the new act and regulation. “

"The act has not provided any protection to these exchanges. Now, they are not legally allowed to operate as exchange market until they get license from the boar”," Niraj Giri, an executive director of the Sebon, told Republica“ "They might be operating under the contract law. But they are not allowed to say that its exchange market that they are running. Once their contract ends, they should start the process to get the license as laid down in the regulation", he added. 

While there is no exact data on the number of exchanges currently in operation in Nepal, the Economic Survey of the Ministry of Finance for FY 2016/17 states that three out of seven commodities exchanges are in operation in the country. These companies handled transactions worth Rs 295.32 billion in FY 2015/16 and Rs 226.83 billion in the first eight months of 2016/17. 


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