Commodity exchanges to reduce foreign investment in six months

NEW DELHI: The government on Wednesday gave six months extra time to commodity exchanges till March 31, 2010 to reduce the foreign investment in them to the limits prescribed. The government has set a limit of 49% foreign investment in which not a single entity can own more than 5%.

The most obvious beneficiary of the development would be Fid Fund (Mauritius), an affiliate of Fidelity International, which has about 9% stake in Multi-Commodity Exchange (MCX). Fid Fund has now six more months to reduce its stake to 5%.

None of the commodity exchanges--MCX, the National Multi-Commodity Exchange and the National Commodities and Derivative Exchange--have reached the 49% limit in foreign investment, said an industry veteran who was unwilling to be quoted because of his association with these exchanges.

"Difficulties have been brought to the notice of the government in complying with the provisions of the Press Note (2 of 2008) within the stipulated time frame.....the government has decided to allow a further transition time," the department of industrial policy and promotion (DIPP) said in an order called the press note 7 of 2009.

The department said that after the grace period, non-compliance to the foreign investment limit would be a violation of the Foreign Exchange Management Act of 1999. All commodity exchanges will have to furnish a status on their foreign investment, the break up and the steps planned to comply with the norms to the industrial policy and promotion department, consumer affairs department, the Foreign Investment Promotion Board, the Forward Market Commission and the Securities and Exchange Board of India.