Old companies short-changed by new commodity rules

Kathmandu, November 28

The existing commodity exchange companies have become illegal after the Securities Board of Nepal (SEBON) implemented the new Commodity Act and Commodity Market Regulations.

The new laws do not recognise the companies that are already registered and providing commodity exchange services to their clients.

SEBON implemented Commodity Market Regulations from Monday and the Commodity Act 2017 from July 31.

“The newly implemented laws do not recognise and protect the existing companies and their businesses. They have to follow the rules as per the provisions of new laws if they want to do business in the future,” informed Niraj Giri, executive director and spokesperson for SEBON.

However, according to one of the commodity market operators, SEBON had unofficially told them not to take any new contracts after the regulations are implemented but that they can handle the commodity products that have already been contracted.

“Officials of SEBON told us to provide service as per the earlier contract, but we would not be allowed to take any new contract from Saturday,” a source told The Himalayan Times seeking anonymity. “But SEBON has not provided any written document regarding it.”

Meanwhile, Director of Nepal Derivative Exchange Ltd, Ravi Shankar Singh said that with the new legal move of the regulator, the market players have been faced with a chaotic environment in the last few days. “We don’t have any problems in registering as a new company, but this move has pretty much erased our achievements over the years,” he said.

Nepal Derivative Exchange, Derivative and Commodity Exchange and the Mercantile Exchange Nepal are in operation as commodity exchange companies at present. As per the provision of new laws, these companies have two options — either shut down or apply for the new licence as a newly established company.

Before the Parliament endorsed the act, there was no legal provision to regulate the commodity market in the country. In the existing Securities Act 2007, SEBON is authorised to regulate only the capital market, that is, the secondary market, while there is no mention of the commodities market.

As per the new act, SEBON will issue operating licence to those companies that are interested in commodities exchange, trading, payment and settlement, and operating warehouses. The act has set a minimum paid-up capital requirement of Rs 500 million for a commodity exchange company. As per the law, commodities exchange firms can also opt for merger or acquisition.

Various commodities and derivatives products can be traded in the commodity exchange. The commodities that are traded in the exchange market are agricultural products and other raw materials. SEBON has allowed investors to trade under six different categories in the commodities exchange market of the country through the new regulation. These categories include agro, metals, precious metals, minerals and crude oil, and other products.