Commodities repositories to be launched next week
Finance and trading in negotiable warehouse receipts soon
Trading in negotiable warehouse receipts, a decade-old idea, will be a reality next week, when two repository recordkeeping agencies start operations.
The Warehousing Development and Regulatory Authority (WDRA) has licensed these two repositories. These will keep records of goods stored and moved from regulated warehouses, including warehouse receipt transfers, the same way share transfer records are kept by depositories.
One of the two has been established by the National Commodity and Derivatives Exchange (NCDEX), an agriculture-centric one. The other, CDSL, has been promoted by the BSE. They’re going online when launched next week in Delhi. “We have been working on repository and issue of electronic negotiable warehouse receipts (eNWR) with the respective regulators since long. The move will allow faster financing against such receipts and stocks can be tracked online,” said Samir Shah, managing director (MD) of NCDEX.
Named the National E-Repository, he said it would have 67 per cent NCDEX holding. The National Bank for Agriculture and Rural Development (Nabard) will have 13 per cent stake. State Bank of India and ICICI Bank, the largest government-owned and private one, respectively, would have a little below 10 per cent stake each.
Around Rs 40,000 crore of financing is happening against collateralised stock. With the e-NWR, this market could expand multifold. At present, with defaults, financiers are finding it difficult to auction stocks and there is also the cost of collateral management fees. With e-NWR, banks may simply sell or transfer such receipts and recover their money.
So far, goods are financed against paper-based warehouse receipts, not fool-proof or fraud-proof. Electronic receipts which can be transferred like negotiable instruments open opportunities for hassle-free and faster trading in commodities. Especially for agricultural commodities, where losses in transit are huge as compared to non-agri ones.
Scaling up will take time, as the warehousing regulator has to ensure a surveillance and enforcement mechanism. By WDRA norms, responsibility for quality and delivery of stock is with the warehouse. However, when these are traded and delivered on an exchange, the latter must guarantee the settlement and compensate a buyer for losses, if any. However, the exchange will be able to then claim compensation by the warehouse.
NCDEX already has a four-tier surveillance mechanism, beginning with the warehousing service provider. Then, the exchange’s logistics team surveillance, the exchange’s surveillance team which reports directly to the MD and by an independent surveillance agency. Over and above, the Securities and Exchange Board of India does random checking of goods in warehouses to match with the record in the exchange concerned.
NCDEX’s monthly delivery on its platform is around 100,000 tonnes a month. It has begun providing RFID tags to all bags of highvalue commodities, such as spices and guar gum.
This allows it to make online checks of any movement of stocks in these commodities in the approved warehouse and against any e-NWR issued against these, against which banks give financing. The coverage is to be extended to all commodities. At present, nine banks and 11 non-bank finance companies are active in collateral financing for agri commodities.
The Business Standard , New Delhi, 19th september 2017
Trading in negotiable warehouse receipts, a decade-old idea, will be a reality next week, when two repository recordkeeping agencies start operations.
The Warehousing Development and Regulatory Authority (WDRA) has licensed these two repositories. These will keep records of goods stored and moved from regulated warehouses, including warehouse receipt transfers, the same way share transfer records are kept by depositories.
One of the two has been established by the National Commodity and Derivatives Exchange (NCDEX), an agriculture-centric one. The other, CDSL, has been promoted by the BSE. They’re going online when launched next week in Delhi. “We have been working on repository and issue of electronic negotiable warehouse receipts (eNWR) with the respective regulators since long. The move will allow faster financing against such receipts and stocks can be tracked online,” said Samir Shah, managing director (MD) of NCDEX.
Named the National E-Repository, he said it would have 67 per cent NCDEX holding. The National Bank for Agriculture and Rural Development (Nabard) will have 13 per cent stake. State Bank of India and ICICI Bank, the largest government-owned and private one, respectively, would have a little below 10 per cent stake each.
Around Rs 40,000 crore of financing is happening against collateralised stock. With the e-NWR, this market could expand multifold. At present, with defaults, financiers are finding it difficult to auction stocks and there is also the cost of collateral management fees. With e-NWR, banks may simply sell or transfer such receipts and recover their money.
So far, goods are financed against paper-based warehouse receipts, not fool-proof or fraud-proof. Electronic receipts which can be transferred like negotiable instruments open opportunities for hassle-free and faster trading in commodities. Especially for agricultural commodities, where losses in transit are huge as compared to non-agri ones.
Scaling up will take time, as the warehousing regulator has to ensure a surveillance and enforcement mechanism. By WDRA norms, responsibility for quality and delivery of stock is with the warehouse. However, when these are traded and delivered on an exchange, the latter must guarantee the settlement and compensate a buyer for losses, if any. However, the exchange will be able to then claim compensation by the warehouse.
NCDEX already has a four-tier surveillance mechanism, beginning with the warehousing service provider. Then, the exchange’s logistics team surveillance, the exchange’s surveillance team which reports directly to the MD and by an independent surveillance agency. Over and above, the Securities and Exchange Board of India does random checking of goods in warehouses to match with the record in the exchange concerned.
NCDEX’s monthly delivery on its platform is around 100,000 tonnes a month. It has begun providing RFID tags to all bags of highvalue commodities, such as spices and guar gum.
This allows it to make online checks of any movement of stocks in these commodities in the approved warehouse and against any e-NWR issued against these, against which banks give financing. The coverage is to be extended to all commodities. At present, nine banks and 11 non-bank finance companies are active in collateral financing for agri commodities.
The Business Standard , New Delhi, 19th september 2017
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