The commodities market regulator, Forward Markets Commission (FMC), is expected to tighten norms for warehouses recognized by commodity exchanges. These new norms will be announced soon and the FMC is coming out with additional norms to help the warehouses manage delivery-related risk. The market participants will be given about six months to comply, when the norms are notified. FMC and the Warehouse Regulatory and Development Authority have decided to revamp the earlier regime for warehouse providers after the National Spot Exchange fiasco. Various investigative agencies noted the warehouses in question lacked the commodities being traded and rules on storage were violated.
FMC had in August floated a discussion paper on uniform criteria for all warehouse service providers (WSPs). The warehouses will now need to have at least three years experience and a net worth which earlier was proposed at Rs 10 crore and is now being increased. It will be higher for those providing services to recognized commodity exchanges. Warehouses would also need to be a corporate body, with annual financial audits.
FMC would mandate that WSPs set up committees to oversee the functioning of warehouses. The NSEL crisis has also highlighted the importance of insurance for commodities. The new norms will make it mandatory for warehouses to have this, preferably from state-owned general insurance companies. A warehouse should fully insure the value of goods. Besides, a WSP will have to provide for security deposits for the goods stored - 2% security for Rs 250 crore and less, 3% for Rs 250-500 crore and 5% for Rs 500 crore and above. The security deposits can be in the form of bank guarantees, from approved lenders, fixed deposit receipts, cash or liquid deposits.
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