Markets regulator Sebi today proposed warehousing norms for agricultural products traded on national commodity derivatives exchanges, a move which will help in improving the delivery and settlement mechanism.
The proposed norms are aimed at ensuring good delivery of commodities during settlement of futures contracts.
Under the proposed norms, warehouse service providers (WSP) will be a corporate body with the subscribed share capital of Rs 10 crore.
An accredited WSP providing warehousing services would have a minimum net worth of Rs 50 crore for multi-commodities and a minimum net worth of Rs 25 crore for a single commodity.
“For a WSP servicing multiple exchanges, the above net-worth requirements shall be increased by the number of exchanges serviced,” as per the proposed norms.
The commodity exchange would have to ensure that the WSP, its promoters and key management personnel are ‘fit and proper’ to carry out business of warehousing.
“Warehousing infrastructure and its ancillary services play a critical role in the delivery mechanism of the commodity derivatives market. A robust and credible warehousing infrastructure is sine qua non for an effective commodity derivatives market that can inspire confidence amongst the market participants and other stake holders,” Sebi said.
Sebi has proposed to revise the norms for the WSPs, warehouses, and assayers, while superseding the earlier regulation, on the basis of various observations received during visits to different warehouses, meetings held with the WSPs and national commodity derivatives exchange.
The final norms will be put in place after receiving suggestions from all the stakeholders. The Securities and Exchange Board of India (Sebi) has sought public comments on the proposed norms till June 17.
The regulator said that for accreditation of WSP, the commodity exchanges will follow a transparent process by issuing open advertisements in leading newspapers and putting up on the exchange website.
A WSP can be accredited with more than one exchange. Besides, the exchange would not make it mandatory that its WSP cannot provide services to another bourse.
Sebi said that WSP’ promoters should be responsible entities of repute with a good business reputation and credibility and who are in the business of public warehousing for at least three years. They should have an adequate knowledge of and experience in generally accepted warehousing and handling practices for commodities.
WSP and its promoters should not have any record of serious violation of laws or being expelled by any exchange in the last three years.
The accreditation of a WSP will be subject to renewal after a period of three years unless any expulsion proceedings pending against it.
In case of reduction in net worth below the stipulated amount, a time period of six months to one year may be allowed to the WSP to augment its net worth.
However, in the event when a WSP is unable to augment the net worth to the requisite level within the allowed time frame, the WSP should not carry out any new business.
The WSP should submit an audited net worth certificate to the exchange every six months — at the end of every June and December, within 30 calendar days.
A WSP seeking accreditation with an exchange is required to furnish a refundable security deposit of at least Rs 50 lakh along with the application form. In addition, WSP need to furnish financial security deposits.
The exchanges should be responsible for monitoring the warehouses of their accredited WSPs. They also need to ensure independent audit of the stock in the warehouses by expert agencies at regular intervals.
The bourses should have to ensure that the WSPs to be eligible for accreditation have reasonable facility and infrastructure for proper handling and storage of commodity, has a Investor Grievance Cell to handle consumer complaints, have a professional management team to oversee its functioning and operations and have its own warehouses.
The commodity exchanges should review and appraise operational performance of each WSP every year.
“In the event of bankruptcy or insolvency of the WSP or other such contingency, there must be no restrictions placed upon owners/depositors of the commodity wishing to take possession of their individually identified commodity and remove it from the accredited Warehouse(provided rent and handling charges are paid),” as per the draft papers.