FMC warns against PMS practice

Written by Commodities Bureau | Mumbai | Updated: Dec 26 2008, 05:04am hrs
Forward Markets Commission (FMC) has directed the members of the national commodity exchanges not to indulge in any portfolio management services, portfolio advisory services and such other services either directly or indirectly to its clients for investment in commodities futures contracts.

The commission has not formulated any guidelines for investment advisory services by any entity.

The Commission has been receiving a significant numbers of complaints containing allegation of widespread prevalence of portfolio management services (PMS) by the members of national exchange. The FMC had already informed national exchange that PMS is not permitted. Since this practice still appears to be prevalent among some members, it is requested that a general warning be issued to the members against offering PMS to clients, regulator said, in its written directive to the national exchanges.

In this regard, the national exchanges have issued separate instructions to its members and reiterated that members should not undertake any advisory services in the nature of portfolio advisory services, portfolio management services and similar such other advisory services resulting in fund based portfolio management services to clients for investment in commodities future contracts.

The FMC are in the process to formulate guidelines for PMS and other services in the near futures. We are also in favour of the entry of mutual funds into the commodity futures markets in a phased manner but it is difficult to say the time frame, a senior official with FMC said.

It can be noted that the FMC had issued a separate clarification to the exchange members in December 2006 and stated that the specific advisory services rendered by the exchange members are permissible which include research based technical analysis, daily or weekly news letters indicating price trends or predictions and recommendations, commodities specific news andviews and analysis and similar such analysis, outlook, news letters and reports.

However, the FMC also clarified that transactions resulting in fund based portfolio management services are only not permitted.

Portfolio Management Services (PMS) is catching up very fast in the equity markets as an investment avenue of choice for High Networth Investors (HNI). It should be allowed for commodity trading also, a reputed commodity advisor said. PMS is a sophisticated investment vehicle that offers a range of specialized investment strategies to capitalise on opportunities in the market, he added.