The Capital Markets (Commodity Markets) Regulations

Section 1. Citation Section These Regulations may be cited as the Capital Markets (Commodity Markets) Regulations.

Section 2. Interpretation Section In these Regulations, unless the context otherwise requires— "Act" means the Capital Markets Act (Cap. 485A); "Authority" means the Capital Markets Authority established under section 5 of the Act; "board" means the board of directors of a commodity exchange or a commodity broker; "bucketing" means directly or indirectly taking the opposite side of a client's order into a commodity broker's own account or into an account in which a commodity broker has an interest, without open and competitive execution of the order on the trading platform of a commodity exchange; "clearing house" means an entity, approved by the Authority, recognized as a clearing institution on behalf of a commodity exchange, providing the services of clearing and settlement of transactions and guaranteeing settlement on behalf of the commodity exchange; "client" means a person on whose account a commodity broker carries on trading in any spot commodity contract, but does not include directors, key personnel, representatives and related companies of the commodity broker; "commodity" has the meaning assigned to it under section 2 of the Act; "commodity broker" means a company clea...

Section 3. Licensing of commodity exchanges Section 3(1) A person shall not carry on business as a commodity exchange or hold himself out as providing or maintaining a commodities exchange unless such a person has obtained a commodity exchange license from the Authority. Section 3(2) A securities exchange or derivatives exchange intending to operate a commodities exchange shall set up a separate legal entity to conduct such business of a commodity exchange.

Section 4. Application for licence Section 4(1) A person who intends to establish a commodity exchange shall apply to the Authority for licensing in Form A set out in the First Schedule. Section 4(2)(a) copies of memorandum and articles of association; Section 4(2)(b) rules governing the operations of the commodities exchange; Section 4(2)(c) details of trading, clearing and settlement systems proposed to be adopted by the applicant; Section 4(2)(d) the application fees set out in the Second Schedule; Section 4(2)(e) satisfactory bank references; Section 4(2)(f) a business feasibility plan evaluated by an entity with a proven track record and expertise in commodity markets or commodity market development, establishment or management; and Section 4(2)(g) any additional documents as the Authority may require.

Section 5. Considerations in granting a licence Section be a company limited by shares;

Section 6. Rules of the commodity exchange Section 6(1) An applicant seeking to operate a commodity exchange shall develop rules to be approved by the board and the Authority prior to the application. Section 6(2)(a) the clear demarcation of roles and responsibilities of the board, chief executive officer and the committees of the board; Section 6(2)(b) the code of conduct and ethics for directors and key personnel; Section 6(2)(c) the powers of the chief executive officer including in emergency situations; Section 6(2)(d) the granting of membership to the commodity exchange including the procedures for admission as a member of a commodity exchange and requirements for membership inclusive of fees; Section 6(2)(e) powers to levy fees and impose penalties for breach of its rules; Section 6(2)(f) the granting of trading rights and non-transferable memberships of the commodity exchange; Section 6(2)(g) requirements and management of margin deposit by commodity brokers so as to provide reasonable assurance that all obligations arising out of the commodity contracts trading will be met; Section 6(2)(h) general obligations of the trading participants who are members of the commodity exch...

Section 7. Grant of licence Section 7(1) The Authority shall, if satisfied that the applicant has met all the requirements for licensing as a commodities exchange and upon payment of the licensing fees set out in the Second Schedule, grant the applicant a licence to operate as a commodity exchange. Section 7(2) A licence granted shall remain valid unless suspended or revoked by the Authority as specified in regulation 8. Section 7(3) A commodity exchange shall pay an application fee and an annual regulatory fee as set out in the Second Schedule or as may be imposed by the Authority from time to time.

Section 8. Suspension, restriction or revocation of a licence Section The Authority may suspend, restrict or revoke a commodity exchange licence in accordance with section 26 and 26A of the Act.

Section 9. Obligations of a commodity exchange Section 9(1)(a) an orderly, fair and transparent market in spot commodity contracts traded at the exchange is maintained at all times; Section 9(1)(b) adequate market information is readily available to all participants, investors, media and other relevant stakeholders in a commodity market; Section 9(1)(c) risks associated with the operations of the market and the commodity exchange are managed prudently; and Section 9(1)(d) the exchange complies with these Regulations. Section 9(2) A commodity exchange shall operate its facilities in accordance with its rules as approved by the Authority. Section 9(3)(a) regulate the operations, standards of practice and business conduct of its members, their employees, representatives and associates, in accordance with the exchange's rules; Section 9(3)(b) keep such records as are necessary for the proper recording of each transaction in the commodity exchange; Section 9(3)(c) preserve confidentiality of all information in its possession concerning its members and their clients, except such information as may be disclosed by the commodity exchange when required to do so, in writing, by its clearing...

Section 10. Board of the commodities exchange Section 10(1) A commodity exchange shall have a board responsible for the overall leadership, governance and strategic direction of the commodities exchange. Section 10(2)(a) chairperson; Section 10(2)(b) chief executive of the commodity exchange; and Section 10(2)(c) executive and non-executive directors with at least one third of the members of the board being independent directors. Section 10(3) The non-executive and independent directors shall be persons who have knowledge and experience in commodity exchanges, and corporate governance and shall represent the interests of investors and the public interest.

Section 11. Conditions for appointment of directors and key personnel Section 11(1) The Authority shall approve the names of the proposed directors and key personnel where such directors and key personnel have met the fit and proper requirements as prescribed under section 24A of the Act. Section 11(2) An independent director shall serve for a fixed term of three years and shall be eligible for re-appointment, at the option of a commodity exchange, for one further term.

Section 12. Appointment of a chief executive officer Section 12(1) A commodity exchange shall determine the qualification, manner of appointment, terms and conditions of appointment and other procedural formalities associated with the appointment of the chief executive officer. Section 12(2)(a) a significant shareholder or an associate of a shareholder of any commodity exchange; or Section 12(2)(b) a significant shareholder or an associate of a market participant. Section 12(3) The tenure under any contract of appointment of the chief executive officer of a commodity exchange shall not be less than three years and not exceeding five years and may be renewable once. Section 12(4) A commodity exchange may change its chief executive officer upon prior written notice to the Authority. Section 12(5) The Authority may recommend to the board of the commodity exchange the termination of the appointment of a chief executive officer of a commodity exchange if the Authority considers the chief executive officer has not met the fit and proper requirements as set out in section 24A of the Act.

Section 13. Committees of the board and audit committee Section 13(1)(a) audit; Section 13(1)(b) nomination; Section 13(1)(c) risk management; Section 13(1)(d) finance; and Section 13(1)(e) information technology. Section 13(2) Notwithstanding paragraph (1), the Board may establish other committees to deal with any other relevant functions of the commodities exchange. Section 13(3) The committees of the board shall have written terms of reference which set out their authority and duties.

Section 14. Audit committee and internal audit function Section 14(1)(a) at least one third of its members who shall be independent directors; Section 14(1)(b) the Chairperson of the audit committee is an independent director; Section 14(1)(c) at least one of the members of the audit committee holds professional qualification in audit or accounting. Section 14(2) The board shall establish an internal audit function which reports directly to the audit committee. Section 14(3) The internal audit function shall be responsible for providing assurance to the board on the adequacy of the commodity exchange's internal controls and processes.

Section 15. Advisory committee Section 15(1) The board of a commodity exchange shall establish an advisory committee mandated to advise the board on non-regulatory and operational matters including product innovation and design, technology, charges and levies. Section 15(2) The advisory committee shall comprise persons with technical expertise on commodity markets matters or capital markets. Section 15(3) The Chairperson of the board and the chief executive officer shall attend every meeting of the advisory committee. Section 15(4) The advisory committee shall meet at least four times a year, but a period of three months shall not lapse between the date of one meeting and the next meeting. Section 15(5) The recommendations of the advisory committee shall be tabled at the meeting of the board of the commodity exchange for consideration and by the board.

Section 16. Risk management committee Section 16(1) A commodity exchange shall establish a risk management committee comprising directors and independent external experts. Section 16(2)(a) report to the board; Section 16(2)(b) formulate a detailed risk management policy which shall be approved by the board; Section 16(2)(c) monitor the implementation of the risk management policy; Section 16(2)(d) keep the Authority and the board informed on the implementation of policy and any deviation; and Section 16(2)(e) perform any other responsibilities as may be assigned by the board. Section 16(3)(a) be responsible for implementation of the risk management policy; and Section 16(3)(b) report to the risk management committee and to the chief executive officer of the commodity exchange.

Section 17. Appointment of a compliance officer Section The board of a commodity exchange shall appoint a compliance officer in accordance with regulation 30 of the Capital Markets (Corporate Governance) (Market Intermediaries) Regulations.

Section 18. Disclosure and corporate governance norms Section A commodity exchange shall comply with the disclosure requirements and corporate governance norms and conduct of business requirements applicable to market intermediaries, issued by the Authority and as amended from time to time.

Section 19. Net worth requirements Section 19(1) A commodity exchange shall maintain, at all times, liquid net worth amounts of a type acceptable to the Authority, which shall be adequate in relation to the nature, size and complexity of the business of that commodity exchange to ensure that there are no significant risks that liabilities may not be met as they fall due. Section 19(2)(a) an amount equal to one half of the estimated gross operating costs of the commodity exchange for the next twelve-month period; or Section 19(2)(b) such other liquid net worth amount as may be prescribed by the Authority. Section 19(3) A commodities exchange shall establish systems and controls to enable the commodity exchange to determine and monitor the sufficiency of its liquid net worth. Section 19(4) A commodity exchange shall, on a quarterly basis within thirty days after the end of every quarter, submit to the Authority an audited liquid net worth certificate from an auditor.

Section 20. Penalties levied by a commodity exchange Section Any fines imposed by the commodity exchange on its members shall be credited to the Fund.

Section 21. Self-regulatory organization Section 21(1)(a) a procedure and appropriate system of exercising self-regulation over its commodity market members; Section 21(1)(b) a code of conduct for its commodity market members; Section 21(1)(c) adequate trading surveillance and compliance capacity; and Section 21(1)(d) a procedure for dispute resolution. Section 21(2)(a) the rules of the commodity exchange, and any amendments thereto, approved by the Authority; and Section 21(2)(b) laws, regulations and guidelines relating to spot commodity contracts issued by the Authority.

Section 22. Categories of membership Section commodity brokers;

Section 23. Establishment of a clearing house Section 23(1)(a) be a company or such other body corporate as approved by the Authority; Section 23(1)(b) satisfy the commodity exchange as to its technical, financial and human resources, including fit and proper requirements set out in the Act; and Section 23(1)(c) be approved by the Authority as a clearing house. Section 23(2)(a) the applicant will ensure that that there are orderly, fair and expeditious clearing arrangements for transactions in spot commodity contracts; Section 23(2)(b) the rules of the commodity exchange make satisfactory provision relating to guaranteeing to its members of the performance of spot commodity contracts made in a commodity market; Section 23(2)(c) the interests of the public will be served by granting the application; and Section 23(2)(d) all conditions imposed by the Authority on the applicant clearing house have been met. Section 23(3) A clearing house shall be exclusively engaged in its clearing business except only in respect of such other matters as are ancillary or incidental thereto as may be expressly permitted by the Authority. Section 23(4) Where the Authority proposes to impose a condition...

Section 24. Duties of a clearing house Section 24(1)(a) there is orderly, fair and expeditious clearing and settlement arrangements for any transactions in spot commodity contracts through its facilities; and Section 24(1)(b) the risks associated with its business and operations are managed prudently. Section 24(2)(a) act in the interest of the public; and Section 24(2)(b) ensure that where the interest of the public conflicts with its interest, the interest of the public prevails. Section 24(3)(a) operate its facilities in accordance with the established commodity exchange rules relating to clearing and settlement; Section 24(3)(b) formulate and implement appropriate procedures to ensure that commodity brokers comply with commodity exchange rules; Section 24(3)(c) preserve confidentiality on all information in its possession concerning its commodity brokers and their clients, subject to disclosure of such information when required in writing to do so by the Authority, a commodity exchange or if it is ordered by court to do so; and Section 24(3)(d) have efficient procedures and arrangements to address investor complaints. Section 24(4)(a) that any of its agents are unable to comply...

Section 25. Licensing of commodity brokers Section is licenced as a commodity broker by the Authority; and

Section 26. Application for a licence Section 26(1) A person who intends to carry on the business of a commodity broker shall apply to the Authority for a licence to operate as such in Form B as set out in the First Schedule. Section 26(2)(a) the fees as set out in the Second Schedule; Section 26(2)(b) the relevant documents in support of the information and declarations; and Section 26(2)(c) a letter from a commodity exchange stating that the application meets all the relevant requirements of that commodity exchange and that the commodity exchange will admit the applicant if licensed by the Authority.

Section 27. Consideration for grant of license Section 27(1)(a) be a company limited by shares; Section 27(1)(b) have a chief executive officer who is a fit and proper person as described under section 24A of the Act and who has experience of not less than five years in the business of buying, selling or dealing in commodities, spot commodity contracts, derivatives contracts or other securities; Section 27(1)(c) have the necessary infrastructure including office space, equipment and trained staff to effectively discharge its activities; Section 27(1)(d) have as its directors and key personnel, persons who are fit and proper as described under section 24A of the Act; and Section 27(1)(e) have a minimum net capital and minimum net worth as determined by a commodity exchange and approved by the Authority from time to time. Section 27(2) Where an applicant is a market intermediary of another licensed exchange under the Act, the applicant shall provide an undertaking that it shall allocate a set percentage of the net capital balance to support its activities at the commodity exchange. Section 27(3)(a) not be less than the minimum required net capital balance at a commodity exchange; Sec...

Section 28. Furnishing of information and clarifications Section 28(1) The Authority may, in considering an application made for a commodity broker licence, require an applicant to furnish such further information regarding any previous dealings in securities, derivatives, commodities and any other related matter as the Authority may consider necessary. Section 28(2) An applicant or its key personnel shall, if required by the Authority, appear before the Authority to make personal representations.

Section 29. Grant of license Section 29(1) The Authority, shall, within thirty days from the date of receipt of an application that meets all the requirements, grant a licence to the applicant. Section 29(2) The Authority shall within seven days of its decision, inform a commodity exchange and the applicant of the grant of a licence. Section 29(3) A licence granted shall remain valid unless it is suspended or revoked. Section 29(4) The Authority shall not refuse to grant a licence without first giving the applicant an opportunity of being heard. Section 29(5) Where the Authority, after hearing the applicant, refuses to grant the applicant a licence, the Authority shall, in writing, communicate the decision to the applicant and the commodity exchange within fourteen days of the hearing, stating the grounds for refusal. Section 29(6) An applicant aggrieved by the decision of the Authority to refuse the grant of a licence may appeal against such refusal to the Capital Markets Tribunal within fifteen days of receipt of the decision of the Authority.

Section 30. Annual regulatory fee Section A commodity broker shall pay an annual regulatory fee as set out in the Second Schedule.

Section 31. Suspension, restriction or revocation Section The Authority may suspend, restrict or revoke a commodity exchange license in accordance with section 26 and 26A of the Act.

Section 32. Commodity broker to clear its liabilities Section In the event of a suspension or revocation of a commodity broker's licence, a commodity broker shall be responsible for clearing all of its outstanding obligations up to the date on which that commodity broker had been operating.

Section 33. Continuing obligations Section 33(1)(a) the net capital balance; Section 33(1)(b) net worth statements; and Section 33(1)(c) a report of the auditor. Section 33(2) The certified copies of the documents provided in paragraph (1) above shall be submitted to the Authority quarterly within thirty days of the end of the quarter in a form the manner provided by the Authority.

Section 34. Trading system and platform Section 34(1)(a) the trading system of the commodity exchange; Section 34(1)(b) an electronic platform provided by a commodity exchange; or Section 34(1)(c) such other facility a commodity exchange provides, subject to the approval of the Authority. Section 34(2)(a) be integrated with a clearing and settlement system; Section 34(2)(b) have an online screen-based trading system for providing direct market access up to the client level via the internet; Section 34(2)(c) be integrated with the electronic central registry of the warehouse operators prescribed under the Warehouse Receipt System Act; and Section 34(2)(d) have an effective risk management framework.

Section 35. Transactions on a commodity exchange Section Transactions to be conducted in a commodity exchange shall include dealings in spot commodity contracts.

Section 36. Approval of spot commodity contract specifications Section 36(1) The commodity exchange shall submit spot commodity contract specification to the Authority for approval prior to becoming eligible for listing on a commodity exchange. Section 36(2)(a) direct the relevant commodity exchange to correct the deficiency; Section 36(2)(b) direct the relevant commodity exchange to comply with the condition or requirement given by the Authority within the specified time; Section 36(2)(c) amend the specification of any spot commodity contract; or Section 36(2)(d) revoke the spot commodity contract. Section 36(3) The Authority may require an application for approval of a spot commodity contract to be accompanied by an expert opinion regarding any of the information contained in the contract. Section 36(4) An application for approval of a spot commodity contract specification shall not be rejected and an approval of a spot commodity contract shall not be revoked unless the relevant commodity exchange has been given an opportunity to be heard by the Authority.

Section 37. Fixing of position and trading limits in contracts Section 37(1) In order to diminish, eliminate or prevent excessive speculation in any commodity under a spot commodity contract, a commodity exchange, with the approval of the Authority, may, by notice in writing, establish and fix such limits as it considers necessary on the amount of trading which may be done or positions which may be held by any person, generally or specifically, under a spot commodity contract on or subject to rules of a commodity exchange. Section 37(2) A commodity exchange shall, in deciding on whether a person has exceeded the limits fixed under paragraph (1) consider the positions held and trading done by any persons, directly or indirectly, controlled by such a person shall be included with the positions held and trading done by that person. Section 37(3) The limits on positions and trading, described under this regulation shall apply to positions held by, and trading done by, two or more persons acting pursuant to an express or implied agreement or understanding, as if the positions were held by, or the trading done by, a single person.

Section 38. Clearing and settlement through the clearing house Section All approved contracts transacted on a commodity exchange shall be cleared and settled by the clearing house of a commodity exchange, and whenever required, closed out in accordance with the rules of a commodity exchange or as directed by the Authority.

Section 39. Application of Warehouse Receipt System Act Section 39(1) The Warehouse Receipt System Act shall apply to the warehouse receipt of a commodity that is the subject of a spot commodity contract. Section 39(2) The Authority or the commodity exchange subject to the Approval of the Authority may impose additional requirements on warehouses or warehouse operators where necessary to maintain market integrity and efficiency or in the protection of investor interests.

Section 40. Standards of conduct Section The Capital Markets (Conduct of Business) (Market Intermediaries) Regulations (L.N. 144/2011) and the Capital Markets (Corporate Governance) (Market Intermediaries) Regulations (L.N. 145/2011) shall apply to commodity brokers with necessary modifications as may be set out by the Authority.

Section 41. Commodity broker not to use funds Section A commodity broker shall not knowingly use money, securities, property, proceeds or funds received from, advanced to or held for any customer to margin, guarantee or secure the trades or contracts or to secure or extend the credit of any client other than the client for whom such money, securities, property, proceeds or funds are held.

Section 42. Statement of purchase and sale Section dates of the initial transaction and liquidating trade;

Section 43. Statement terms and conditions to be furnished to prospective client Section 43(1)(a) explain the nature of, and risks inherent in trading in contracts and obligations assumed by the client upon entering a contract; Section 43(1)(b) advise the client to request and study the terms and conditions of the contract; Section 43(1)(c) set out the terms and conditions of any relevant contracts; Section 43(1)(d) furnish details concerning commissions and other charges levied by the commodity broker and the commodity exchange. Section 43(2) Every commodity broker shall upon request by a prospective client avail copies of all current terms and conditions of any spot commodities contract. Section 43(3)(a) the opening cash balance for the month in the client's account; Section 43(3)(b) all deposits, credits, withdrawals and debits to the client's account; Section 43(3)(c) the cash balance in the client's account; Section 43(3)(d) each unexpired and unexercised spot commodity contract; Section 43(3)(e) the agreed price of each unexpired or unexercised spot commodity contract; Section 43(3)(f) each open spot commodity contract; and Section 43(3)(g) the price at which each open spot c...

Section 44. Risk disclosure statements Section A commodity broker shall not open a spot commodity contract account for a client unless the commodity broker furnishes the client with a separate written risk disclosure document which shall be in the form provided by a commodity exchange and receives from the client an acknowledgement signed and dated by the client that the client has received and understood the nature and contents of the risk disclosure document.

Section 45. Segregation of clients' funds Section 45(1) A commodity broker shall maintain strict segregation between its own funds and each individual client's funds without any Statement, terms and conditions to be furnished to prospective client. Section 45(2) A commodity broker shall establish a client group account with the designated settlement bank of the commodity exchange of which that commodity broker is a member. Section 45(3)(a) the client group account maintained at the designated clearing house of a commodity exchange; Section 45(3)(b) the client group account at the clearing house of a commodity exchange; and Section 45(3)(c) individual clients' account maintained at the clearing house of a commodity exchange. Section 45(4) A commodity broker shall not accept cash from or pay cash to a client for a transaction under these Regulations. Section 45(5) A commodity broker shall maintain a record of transactions with the relevant banks including client's deposits and withdrawals from the client group account maintained with the commodity exchange designated clearing house.

Section 46. Establishment of the Fund Section 46(1) For the purposes of section 12(1(i) and (j) of the Act, the commodity exchange shall establish a Fund to be known as the Settlement Guarantee Fund for the purpose of providing guarantee to a member of a commodity exchange who fails to meet their clearing and settlement obligations to a commodity exchange arising out of transactions on a commodity exchange. Section 46(2) The settlement guarantee fund shall be maintained by the commodities exchange. Section 46(3)(a) amount of deposit or contribution to be made by each member of the commodity exchange to the settlement guarantee fund; Section 46(3)(b) terms, manner and mode of deposit or contribution; Section 46(3)(c) conditions of repayment of deposit or withdrawal of contributions from the settlement guarantee fund; Section 46(3)(d) charges for drawing from the settlement guarantee fund; Section 46(3)(e) penalties applicable; and Section 46(3)(f) disciplinary actions.

Section 47. Composition of the Fund Section 47(1)(a) contributions from a commodity exchange and its clearing house; Section 47(1)(b) contributions from settlement banks of a commodity exchange as may be determined by the board of a commodity exchange, with the approval of the Authority, from time to time; Section 47(1)(c) such sums of money as accrued from interest and profits from investing the assets of the settlement guarantee fund; Section 47(1)(d) such money recovered by or on behalf of a commodity exchange from entities whose failure to meet their obligations to investors results in payments from the settlement guarantee fund; and Section 47(1)(e) such sums of money as are received for purposes of the settlement guarantee fund from any other source approved by the commodity exchange. Section 47(2) Money accumulated in the settlement guarantee fund may be invested by the commodities exchange in such manner as set out in the rules of the Settlement Guarantee Fund. Section 47(3) A commodity exchange shall recommend the amount of additional contributions or deposit to be made by each of its members. Section 47(4) A clearing house shall, in respect of settlement of transactions,...

Section 48. Form of contribution or deposit to the Fund Section The commodity exchange may, permit a member of a commodity exchange to contribute to or provide the deposit to be maintained with the Fund, in the form of cash or in such other form or method and subject to such terms and conditions, as may be specified by the commodity exchange.

Section 49. Management of the Fund Section defraying the expenses of creation and maintenance of the settlement guarantee fund;

Section 50. Scheme of arrangements on default Section any amount that may have been paid by the defaulting member in the form of a pre-trade deposit, but does not include a client's pre-trade deposit, or any other money deposited with or retained by a clearing house for the purpose of meeting the clearing and settlement obligations;