FMC allows 2 broking firms to set up shops on foreign soil

NEW DELHI: The Forward Markets Commission has permitted two brokerages —Man Financial and Bonanza Commodities — to set up wholly owned subsidiaries abroad. Brokerages are queuing up for permission because it allows them to enter the Dubai commodities market, which is growing rapidly. At a time when it is difficult to scale up volumes in India, having an arm overseas also allows brokerages to boost the bottom line.

“We have yet to finalise strategy. However, we will most likely become active in the Dubai market first. Only later will we consider New York and Chicago,” said Alok Goyal of Bonanza Commodities. The brokerage plans to set up a subsidiary for trading on DGCX, which will cater to new clients as well as the company’s existing clients in India.

“Given the current foreign exchange restrictions, Dubai is the only affordable option for Indian brokerages. It is too expensive to start operations on other exchanges,” he added. Commodity trading in the current fiscal has reached Rs 24.90 lakh crore between April 1 and November 30, 2006.

Though the FMC is willing to give permission, most commodity brokerages in India are still too small to be able to afford an overseas expansion just yet.

“Only when large players and hedgers enter the market and open position limits become realistic can brokerages acquire the necessary size for expansion overseas. In any case, there is still huge potential in the domestic market. So there is no pressing need,” said a broker in Mumbai.

Others disagree. According to the head of one large brokerage, going global is really not an option for Indian brokerages any more. As more exchanges announce tie-ups and create linkages, it is becoming an increasingly integrated business. “In such a market, a global positioning is not just inevitable but vital for survival,” he said.

The Centre, on the recommendations of the FMC, has granted renewal of recognition to the Rajkot Seeds Oil and Bullion Merchants’ Association, Rajkot. The exchange can trade in forward contracts in groundnut, groundnut oil and oil cake up to November 30, 2008. The exchange usually sees trading worth Rs 350-400 crore every month.