NEW DELHI: The Securities and Exchange Board of India (Sebi) has formally withdrawn the recognition of the Indian Commodity Exchange Ltd or ICEX, effectively marking its exit from the bourse business.
The decision follows ICEX’s prolonged struggle to meet regulatory requirements. Initially granted permanent recognition in 2009 under the Forward Contracts (Regulation) Act, 1952 (FCRA), ICEX transitioned to recognition under the Securities Contracts (Regulation) Act, 1956 (SCRA) after the Forward Markets Commission (FMC) merged with Sebi in 2015.
However, in May 2022, Sebi derecognised ICEX for failing to maintain the minimum net worth requirement, address infrastructural deficiencies, and rectify issues identified during inspections.
Voluntary exit
In response to Sebi’s derecognition, ICEX approached the Securities Appellate Tribunal (SAT), which temporarily allowed the exchange to retain its recognition, provided it complied with regulations within a year. ICEX attempted to raise funds but faced challenges due to Sebi’s 5 per cent cap on individual shareholding in stock exchanges.
ICEX sought Sebi’s approval to permit investors to hold up to 51 per cent equity for five years to address its financial difficulties. Sebi declined this request, interpreting ICEX’s subsequent communication as a voluntary surrender of recognition. Consequently, ICEX shareholders passed a resolution in May 2023, paving the way for its exit.
A compliance measures
Sebi’s exit process involved a detailed review of ICEX’s valuation report, compliance submissions, and undertakings. The exchange declared all known liabilities, assured the absence of undisclosed third-party liabilities, and accepted responsibility for any future financial claims.
In its final notification dated December 24, Sebi outlined conditions for ICEX, including:
Complying with tax obligations under the Income Tax Act, 1961; Changing its name and ceasing to use the term ‘stock exchange’; and maintaining a database of all past transactions on its platform.
Implications of ICEX’s exit
ICEX’s exit underscores the challenges faced by smaller exchanges in meeting regulatory and operational standards, particularly in an environment of stringent compliance requirements. The withdrawal reduces competition in the commodity exchange space, leaving larger players to dominate the market.
For stakeholders, the impact lies in limited platforms for commodity trading and the potential reallocation of resources and expertise from ICEX to other exchanges or ventures. The exit also highlights the regulatory challenges in balancing investor protection with the growth and sustainability of financial institutions.
