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Stricter proprietary trading norms in commodity derivatives

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Further tightening the norms in commodity derivatives trade, The Securities and Exchange Board of India ( Sebi) has asked commodity exchanges to adopt the same proprietary trading practices as in securities markets. Comexes have been told to accordingly change their rules According to trade sources, many brokers currently take front- end positions in comexes in proprietary accounts, later transferred to clients’ accounts through client code modifications (CCM). Sources estimate 25- 30 per cent of trades go through in this manner.
“Once this circular is adopted, such practices would stop,” said a senior official with a leading brokerage. Earlier, Sebi had asked exchanges to use CCM only in extreme cases. The current circular is meant to increase the transparency in dealings between a stock broker and clients in commodity derivatives. Sebi circular, dated November 19, 2003, also says proprietary trade should only be done from the registered office of a broker, a practice adopted by equity brokers. Currently, proprietary trading is executed from offices of commodity brokers anywhere across the country.

Sebi gas also asked brokers to make disclosures available to clients. This circular supersedes all previous ones in this regard. All exchanges need to inform Sebi of the status of implementation in their Monthly Development Report.

Business Standard, New Delhi, 27 April 2016

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