Pursuant to the merger of SEBI and the Forward Markets Commission, commodity derivatives exchanges have to frame norms for warehouse service providers (WSP), warehouses, assayers etc. for ensuring sound delivery of commodities during settlement. To strengthen these norms, SEBI recently published a consultation paper proposing new warehousing norms for agricultural and agri-processed commodities traded on national derivatives exchanges.
It has been proposed that WSPs shall be accredited with the approval of the exchange’s risk management committee. Exchanges are required to adopt a transparent process for accreditation of WSP. To be eligible for accreditation, a WSP, among other things, shall (i) be a corporate body and in public warehousing business with a minimum paid-up capital of Rs. 100 million; (ii) have a minimum net-worth of Rs. 500 million for multi-commodities or Rs. 250 million for single commodity; (iii) have reasonable facilities for storage of commodities; and (iv) have a professional management team. Further, the WSP, its promoters and key management personnel have to be ‘fit and proper’ to undertake warehousing business. The consultation paper also specifies certain financial security deposits which the WSP has to furnish.
A WSP can be accredited with more than one exchange and its accreditation shall be subject to renewal after 3 years. Under the proposed norms, every accredited WSP is required to have its own warehouses and get insurance cover for the commodities stored at its warehouse. Exchanges have to ensure that accredited WSPs are registered with the statutory authority, namely, Warehousing Development Regulatory Authority, and that they have an Investor Grievance Cell to handle consumer complaints. Exchanges also have to ensure independent audit of the stock in the warehouses by expert agencies.
The proposed norms are comprehensive and if implemented, will have a positive impact on the delivery and settlement mechanisms involved in commodities market transactions. These norms seek to establish a robust mechanism for regulating warehousing systems and enhance transparency, to curb occurrence of events similar to the National Spot Exchange Limited payment crisis, which triggered the SEBI-FMC merger. This move may infuse confidence in the commodities market, which had collapsed following the crisis, and make it attractive for potential investors.