My Republica – Commodities Exchange Market Act endorsed by parliament

Commodities Exchange Market Act endorsed by parliament

KATHMANDU, July 31: The commodities exchange market has now come under the regulatory ambit with the passage of Commodities Exchange Market Bill, 2017 through the parliament on Sunday. 

The newly endorsed bill will be enacted 90 days after the President authenticates it.

A commodities exchange is an exchange where various commodities and derivatives products are traded. The commodities that are traded in the exchange market are agricultural products and other raw materials (like wheat, barley, sugar, maize, cotton, cocoa, coffee and milk products) and contracts based on them. 

While there are a number of exchange companies in operation and carrying out commodities trading for the past decade, they have been largely remained unregulated, putting investors at the risk of losing their money. These companies are operating without any legal framework. These exchange companies have been trading commodities like agricultural products, precious metals, base metals and energy products, among others. 

A study report recently prepared by the Securities Board of Nepal (Sebon) has found that many investors were losing their money while investing in the market, among other irregularities, prompting the government to start the process to draft the bill to bring the market under legal ambit.

The new law has designated the Sebon as the regulatory body for the commodities market sector. 

Now onwards, companies interested to carry out commodities exchange, trading, payment and settlement and operate warehouse must get license from the Sebon. The law has set Rs 500 million as the minimum paid-up capital for the commodity exchange company. According to the act, a company operating commodity exchange market can have a maximum of seven board directors including at least two independent directors.

Similarly, a shareholder cannot own more than 5 percent of shares in the company. However, foreign investors coming as a strategic partner in such company can hold up to 51 percent of shares, according to the act.

Commodity exchange companies can also designate a warehouse to a licensed warehouse company for commodities whose trading are carried out in the market. The warehouse operating company should also get license to store and handover the commodities traded in the market, according to the act. 

“The passage of the law will bring the unregulated commodity market under the regulatory ambit. This will offer greater transparency in the trading process of the commodity exchange,” Niraj Giri, the spokesperson for Sebon, told Republica. 

He said that the Sebon will now prepare the bylaws and other necessary rules toward the implementation of the act. Similarly, the act also has a separate provision for the brokers for the commodity exchange market. 

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