MCX told to penalise brokers for not collecting margin money

MUMBAI: Commodity bourse regulator Forward Markets Commission (FMC) has directed the Multi Commodity Exchange (MCX) to impose stringent penalties on brokers who do not collect margins from clients. The penalty for non-collection of margin has been fixed at a minimum of Rs 2,000 per client for each day on which trading is undertaken on behalf of the client, and is subject to a maximum fine of Rs 25,000. When contacted, Rajeev Agrawal, member, FMC, said that it was essential to issue this directive as it was observed during inspections that members were violating rules by not collecting margins from clients.

���It was essential for the purpose of risk management and the provisions are in the interest of the market. I do not think the latest directive will lead to any shift in trade or bring down the volumes on the exchange.��� ���The move by the exchange to punish errant brokers will lead to healthy participation and default rates will reduce significantly,��� the head of a well-known commodity brokerage said on condition of anonymity.

However, another broker said the measure could lead many small brokerages, which do not insist on margin payment by clients before placing trades, to turn to bucket shops as most of their patrons are not in position to trade with margins. ���The decision will especially upset small brokers located in remote places, who are likely to shift to dabba trade which requires no payment of margin and where trades are settled in seven days,��� he said.

Similar, stringent norms were followed by equity markets only after they checked the practice of kerb or dabba trading, according to brokers. ���FMC should have first taken steps to check the unofficial trade before implementing such stringent norms,��� said one broker. FMC has also directed the exchange to impose a suitable penalty on the cash dealings of members with their clients. The non-compliance charges for cash dealings exceeding Rs 10 lakh will be 0.1% of value.