The model proposed earlier by NSE of it setting up a national bourse for commodities trading has been replaced by a suggestion that the exchange, in a role of a consultant, sets up a common exchange for commodities and a clearing corporation to go with it and hands it over to the commodity market for running on a day-to-day basis.

Ever since NSE managing director, RH Patil proposed a role for NSE in pushing towards a modern commodity exchange in the country, the FMC has increased its interaction with the exchange.

Recently, NSE's deputy managing director, Ravi Narain, was asked to make a presentation at the workshop on commodity futures market organised by the ministry of food and consumer affairs.

Narain in hispresentation said that the securities markets the world over had imbibed a number of systems from the commodities market. The reverse should happen in India as the commodities exchange move towards providing a transparent trading mechanism.

With futures in several commodities set to pick up in a big way it is absolutely imperative that commodity exchanges put in place adequate risk management systems in place.

"The Chicago Board of Trade (CBOT) was set up in 1840 by a group of grain traders. In January 1926, the first clearing corporation was established to guarantee settlement and maintain market integrity. Interestingly, financial futures were introduced at the futures bourse only in 1975", said Narain.

"The world over the equity markets have developed on the back of developments witnessed in the commodity markets. This has not happened here. It is imperative to build modern infrastructure for the commodity bourses and the only way this can be done is if a computerised multi-commodity exchange is setup as it will not be viable for each exchange to set up a separate infrastructure", said Narain.

First of all the concept of clearing members need to be introduced. "Each broker cannot be highly capitalised. Hence there should be a clearing member who in turn facilitates trading for a trading member", said Narain. This is the system being adopted in the derivatives market for equity as well.

"The reason for the success of the open outcry system in the past was the absence of technology which could facilitate handling of large contracts. Systems today can handle these contracts and handle much more", said Narain.

"The clearing corporation is the heart of all risk management systems. The concept is the same irrespective of whether the product is cotton or an equity share. What is different is the volatility. Depending on the volatility the margins can be calculated", said Narain.

As regards clearing banks, an exchange should ensure that only banks with an electronic fund transfer facility are selectedand there should be more than one clearing bank to ensure competition.

The size of a settlement guarantee fund should be such that if the top 10 brokers of the bourse collapse, only 10 per cent of the corpus of the fund should stand wiped out, said Narain.