Universal Commodity Exchange suspends trading after just an year

MUMBAI: Months after commodity bourse Indian Commodity Exchange (ICEX), promoted by the Anil Ambani-led Reliance Group, shut down in April this year, another exchange, Universal Commodity Exchange (UCX) has decided to temporarily suspend trading a little over a year after commencing operations. Commodity market regulator Forward Markets Commission (FMC) has also directed the promoter of UCX — Commex Technology — promoted by software professional Ketan Sheth to return funds it lent out to certain group companies from the bourse. Ketan Sheth, MD, Commex Technology and a UCX board member, was not available for comment.

But, a source told ET that funds of Rs 7.5 crore, belonging to the bourse, were lent out by the promoter before UCX became operational on April 19, 2013. The source also said money was removed from the equity that the commex raised to meet the paidup capital requirement of Rs 100 crore for a new exchange. This money, he claimed, will now be returned to the exchange. Listed company Commex Technology owns 40 per cent in UCX. IDBI Bank (10 per cent), REC (16 per cent) and Nabard (16 per cent) are the other leading stakeholders in the bourse. UCX has been hit by losses month after month and a few commodity brokers said on condition of anonymity that they would not be “surprised” if the exchange shut down.

The share of Commex Technology fell 2 per cent to close at Rs 4 on Wednesday. FMC has also given its approval to UCX to suspend trading in all contracts where open interest (OI) – outstanding traders’ buy or sell positions – is zero with immediate effect. Trading in contracts where traders are participating — in which OI exists — on July 16 will be put on square-off mode. This means a participant with an outstanding buy position can only sell the contract and exit and vice versa. The bourse offers contracts in oilseeds, pulses and crude oil and natural gas. However, futures contracts such as gold, silver, rubber and turmeric have little or low participation.

UCX said in a circular that “no new contracts shall be approved for trading and no fresh contracts will be launched without the approval of the FMC. During the interim period, the exchange will formulate business strategy for new segments and products in view of the prevailing market conditions.”

UCX posts an average daily turnover (ADT) of around Rs 100 crore, among the lowest of five national level exchanges. Metals and energy bourse MCX posted an ADT ofRs 21,000 crore during the fortnight ending June 30 while farm futures bourse NCDEX clocked average turnover of Rs 4,936 crore over the same period. Commodity market turnover has been hit by the imposition of a transaction tax since July last year. This has impacted participation by day traders and jobbers who play on small market moves to make a quick buck. Consequentially, volumes and transaction charges — main revenue source for bourses — have been hit. CTT of Rs 10 per lakh is levied on a seller of a commodity futures contract.

The impact of CTT was such that the combined turnover of the commodity futures market comprising six national exchanges and 15 regional ones shrank 41 per cent to Rs 101 lakh crore during FY14 from a year ago.