ANNEXE

Government of India Ministry of Consumers Affairs, Food and Public Distribution

Department of Consumer Affairs

Shastri Bhavan New Delhi

Guidelines on the Equity Structure of the

Nationwide Multi Commodity Exchanges after five years of operation∗

F. No. 12/1/2007-IT Dated 29th July 2009

Preamble

The Commodity Futures Derivative markets were opened up in 2002 and have

witnessed very rapid growth thereafter. The commodity exchanges have played a key role

in their expansion. The Government recognized and licenced three Nationwide Multi

Commodity Exchanges (NMCEs) - MCX, NCDEX and NMCE – who have completed five

years of their operations in the commodity derivatives market (CDM). The Forward Markets

Commission has been issuing, from time to time guidelines and directions aimed at better

governance, transparency and investor confidence in the CDM.

2. Recently, on May 14,2008, the Government has issued guidelines for setting up of a

new National Multi Commodity Exchange to further strengthen the existing infrastructure in

CDM. In the said Guidelines, para No. 5.3 has set the framework for shareholding and

clause (f) of the said para has provided for the revision of shareholding of a Nationwide Multi

Commodity Exchange (hereinafter referred to as “National Commodity Exchange” or “NCE”

in short) after the completion of 5 years of operation in the CDM. Therefore, all the National

Commodity Exchanges after completion of 5 years of operations need to align their

shareholding pattern with the shareholding pattern as specified below, within a period of one

year failing which the concerned National Exchange will be liable to lose its national status.

This would mean that its recognition for all commodities notified under section 15 or

∗ As Amended vide F. No. 12/1/2007-IT, dated 9th July 2010

otherwise not prohibited under section 17 of the Forward Contracts (Regulation) Act, 1952

will be converted into recognition in specific commodities as may be listed in the recognition

notification and that too for specified period which will need to be renewed from time to time.

The said period of one year may be extended by the Forward Markets Commission in

exceptional cases on genuine grounds for a further period not exceeding one year.

(Explanation: “National Commodity Exchange” means a demutualised Commodity

Derivative Exchange with an independent professional management, an electronic trading

platform, all India operations and recognized under section 6 of the Forward Contracts

(Regulation) Act, 1952 for trading in all commodities notified u/s 15 or otherwise not

prohibited for trading u/s 17 of the said Act.)

This issue has been under the consideration of the Government for some time and it

is now pleased to issue the following guidelines in this behalf.

Guidelines

3. Government has powers to issue new guidelines. Guidelines for conversion of

Regional Exchanges into National Commodity Exchange needs to be spelt out. This issue

has been under the consideration of the Government for some time back and after revisiting

and reviewing the current ownership structure of the existing National Commodity

Exchanges, the following Guidelines are laid down:

3.1 All National Commodity Exchanges should have a paid up equity capital of atleast

Rs. 50 crore and Networth* of atleast Rs. 100 crore as a going concern and on a

continuous basis.

(* Note: Networth is defined in the enclosed Note 1)

3.2 The total shareholding of the class of entities mentioned below should not be less

than 26%:

i. Government Companies, as defined in the Companies Act 1956;

ii. Banks and Public financial institutions;

iii. Government Companies as defined in the Companies Act, 1956,

Cooperative Societies as defined in the Societies Act and Federations

manufacturing or marketing agri inputs or marketing agri-produce or owning

and operating warehouses; and

iv. Warehousing Companies in the private sector having minimum five years’

standing in warehousing business and owning and operating warehouses in

at least two states.

However, the total shareholding of the Government companies mentioned in sub

paras (i) and (iii) above shall not be less than 10%.

3.3∗ No shareholder, except the original promoters/investors, at the time of

recognition as an NCE, either individually or together with persons

acting in concert with it, shall hold more than 15% of the paid up equity

capital of the Exchange. For original promoters/investors this limit will

be the maximum of 26%.

In case the shareholding of each of the original promoters/investors

including the Anchor-Investor falls below 15%, one of the shareholders

including the new shareholders may be allowed by FMC to act as

Anchor-Investor and to increase its equity shareholding to a maximum

of 26%.

The shareholding of Stock / Commodity Exchange (s) will, however, be

governed by the conditions contained in Para 3.4 of these guidelines.

(Explanation: “Anchor-Investor” is an investor who plays the lead role in

managing the National Commodity Exchange.)”

∗ Clause 3.3 amended vide F. No. 12/1/2007-IT, dated 9th July 2010

3.4∗ (a) The shareholding of any single Stock Exchange alongwith the

persons acting in concert shall not be more than 5% of the subscribed

and paid up equity capital of the said National Commodity Exchange.

The cumulative shareholding of Stock Exchanges in the relevant

National Commodity Exchange shall not be more than 10%.

(b) The shareholding of any single Commodity Exchange alongwith the

persons acting in concert shall not be more than 15% of the subscribed

and paid up equity capital of the said National Commodity Exchange.

(c) The cumulative shareholding of all Stock / Commodity Exchanges

alongwith the persons acting in concert in the relevant National

Commodity Exchange shall not be more than 20% at any given point of

time.”

3.5 The shareholders of the Exchange shall not have any trading interest either as a

trading member or as a client of the Exchange. The shareholding of a broker/member

of any other commodity exchange shall not exceed 1% and the total shareholding of

all such brokers/members taken together shall not exceed 10% of the paid up equity

capital. They will also not hold any seat in the Management/ Board of the Exchange.

3.6 No non-corporate entity, apart from those covered by the preceding para 3.5, shall

hold more than one percent of the paid up equity capital of the Exchange and the

total of such holdings together with that of those covered by para 3.5 shall not

exceed 25% of the paid up equity capital of the Exchange.

3.7 Allotment of shares to foreign entities must be in conformity with the provisions of the

Press Note no. 2 of 2008 dated March 12, 2008 issued by the Department of

Industrial Policy & Promotion, Government of India, subject to any changes therein

made by the Government from time to time.

∗ Clause 3.4 amended vide F. No. 12/1/2007-IT, dated 9th July 2010

3.8 It is obligatory on all shareholders of the Exchange to align the shareholding pattern,

as per these present guidelines and guidelines that may be issued by the

Government/ Forward Markets Commission from time to tome.

4 The Exchange shall confirm to the Commission in writing that the investors in whose

favour the divestment/fresh issue of equity is made, fulfill the criteria for ‘a fit and proper

person’ as defined in the enclosed Note 2.

5. All disinvestments or fresh issue of equity shares of more than 1% shall be subject to

the prior approval of the Forward Markets Commission and before seeking such approval,

the Exchange should ensure that the proposal satisfies the above requirements.

6. As far as the existing National Commodities Exchanges are concerned, the last date

for compliance with the above guidelines (except for amended para 3.4) shall be 30th

September 2010, which can be extended by the Forward Markets Commission upto 30th

September, 2011 in exceptional cases on genuine grounds. Provided that the last date for

compliance with the condition at para 3.4 would be 31st December, 2010 which could further

be extended upto 31st March, 2011 by the Forward Markets Commission in exceptional

cases on genuine grounds

( Brij Mohan ) Director(IT).

Note 1

Networth: The networth for the purposes of these guidelines will be computed as under:

1. Paid up equity share capital

Add

2. Non-redeemable preference shares capital 3. Share premium paid in cash 4. Reserves and surplus ( excluding capital reserve, revaluation reserve, and

such other reserves which have been earmarked for specific purposes and are not available for distribution) Less

5. Loans and advances except for the ones given for the purposes of business of the Exchange.

6. Investments in non-quoted companies for the purposes other than developing infrastructure for or in the Commodity Sector.

7. Investments in the non-marketable securities. 8. Investment in the quoted securities in excess of 10 % of total equity fund. 9. Intangible assets acquired for cash for purposes other than the business of

the Exchange.

Note 2

CRITERION FOR A PERSON TO BE DEEMED TO BE

‘A FIT AND PROPER PERSON’

For the purpose of these guidelines, a person shall be deemed to be a fit and proper

person if -

(i) such person has a general reputation and record of fairness and integrity,

including but not limited to –

(a) financial integrity;

(b) good reputation and character; and

(c) honesty.

(ii) such person has not incurred any of the following dis-qualifications -

(a) the person or any of its whole time directors or managing partners has

been convicted by a Court for any offence involving moral turpitude or any

economic offence, or any offence against any laws;

(b) an order for winding up has been passed against the person;

(c) the person or any of its whole time directors or managing partners has

been declared insolvent and has not been discharged;

(d) an order, restraining, prohibiting or debarring the person, or any of its

whole time directors or managing partners from dealing in commodities /

securities or from accessing the market has been passed by any

regulatory authority and a period of three years from the date of the expiry

of the period specified in the order has not elapsed;

(e) any other order against the person or any of its whole time directors or

managing partners which has a bearing on the commodities market, has

been passed by any regulatory authority and a period of three years from

the date of the order has not elapsed;

(f) the person has been found to be of unsound mind by a Court of

competent jurisdiction and the finding is in force; and

(g) the person is financially not sound.

(iii) If any question arises as to whether a person is a fit and proper person, the

decision of the Forward markets Commission in this behalf shall be final.