The National Commodity and Derivatives Exchange (NCDEX) has proposed to expand form of common Clearing Corporation covering across market segments. Exchange’s spokesperson said that, “In our view, there is a need for a common clearing across market segments catering from mandis (APMC), forwards and futures as well as state government and central government procurement and sale activities.’
Working group appointed by the government on the subject has proposed “an independent single common clearing corporation (CC) may be set up for the National commodity exchanges.” Since futures and forwards contracts are traded on these exchanges, proposed CC will settle both segments but spot markets and APMCs as well as state procurements are outside exchange platform.
The proposal gives a different dimension to commodities trading in India as eventually spot trading may also come on commodities platform. On electronic platform NCDEX has a subsidiary which integrates APMCs electronically and even trading is happening on that platform. However, for thousands of mandis in the country there are no transparent settlement and clearing institutions.
However, experts believe this even if accepted, can be implemented in phases only. In capital market, there is no common clearing corporation. Exchanges do independent clearing.
Interestingly, regional exchanges have been given option of clearing their trades under existing arrangements or can do so under new corporation. “The NCDEX Group would be happy to offer its clearing and settlement services to smaller and regional exchanges in order for them to benefit from our expertise,” said the exchange’s spokesperson.
NCDEX spokesperson also said that, “It is important that a single source of potential failure in the market place be avoided as it can cause systemic risks the ramifications of which could be disastrous to the entire market. At this stage of market development, it is important to develop the market by ensuring competition so that innovation and customer service is not compromised.”
NCDEX is the only National Commodity Exchange in the country to have a vertically integrated architecture and capability to support the growth of the commodity derivatives market. NCDEX is settling its futures as well as forward trading on National Commodity Clearing Ltd (NCCL). MCX has a clearing corporation, but it was not operative and trades are settled at the exchange’s clearing house. FMC has not permitted it to operationalize Clearing Corporation untill FCRA amendments are cleared.