Exit Order in respect of Rajkot Commodity Exchange Limited (RCX)

1. The Rajkot Commodity Exchange Limited, Rajkot (hereinafter referred to as “RCX/Exchange” and formerly known as “Rajkot Seeds Oil & Bullion Merchants Association Limited”) was first granted recognition under Section 6 of the Forward Contracts (Regulation) Act, 1952 (hereinafter referred to as “FCRA”) vide Notification dated April 12, 1991 to organise forward trade in Castor seed contracts. Thereafter, the Government of India has renewed the said recognition from time to time. The recognition of RCX was last renewed, vide S.O.458 (E) dated February 25, 2013, for a period of five years from 1st April, 2013 to 31st March, 2018 by the Government of India, in respect of forward contracts in castor seed. The said recognition was granted subject to the condition that the Exchange would comply with such directions as may be issued from time to time by the erstwhile Forward Markets Commission (hereinafter referred to as “FMC”).

2. The annual turnover at RCX during the period 2015-16 was only ₹1975.52 crore which further declined to ₹759.18 crore during the period from 1st April 2016 to 30th November 2016, in castor seed futures, which was the only commodity traded on the exchange platform. The Exchange has discontinued trading on its platform since December 01, 2016. Thereafter, the Exchange has made no attempts for revival of trading and has not formulated any revival plan for the purpose of resumption of trading. Thus, for more than one year, there has been no trading in the Exchange and apparently, the Exchange has no plan to revive trading on its platform.

3. As per Section 28A (1) of the Finance Act, 2015, pursuant to the merger of FMC with the Securities and Exchange Board of India (hereinafter referred to as “SEBI”), all recognised associations under FCRA are deemed to be recognised stock exchanges under the Securities Contracts (Regulation) Act, 1956 (hereinafter referred to as “SCRA”) and hence RCX is deemed to be a recognised stock exchange under the SCRA.

4. SEBI has issued a Circular No. CIR/CDMRD/DEA/01/2016 dated January 11, 2016 (hereinafter referred to as “Exit Circular, 2016”) laying out the mandatory requirements/

Exit Order in respect of The Rajkot Commodity Exchange Limited exit policy for all commodity derivatives exchanges. In terms of paragraph 4 of the Exit Circular, 2016, if there is no trading operation on the platform of any commodity derivatives exchanges for more than twelve months, then such exchange shall be liable to exit. Additionally, in terms of paragraph 5 of the Exit circular, all Regional Commodity Exchanges shall have to ensure that they have at least 5% of the nation-wide market share of the commodity, which is principally traded on their platform. In case any Regional Commodity Exchange fails to meet both the above two criteria for two consecutive years, it shall be liable to exit.

5. RCX, vide its letter dated June 21, 2017, has informed SEBI that its Board of Directors in their Meeting held on June 15, 2017 have unanimously decided to voluntarily accept the exit policy of SEBI and accordingly exit from futures trading as there is no chance of revival of trading. In this regard, it is observed that RCX did not have the required 5% of the nation-wide market share of the commodity, which is principally traded on their platform, i.e. castor seed for the two consecutive years, i.e., 2015-16 and 2016-17. Hence, RCX is liable to exit as a Recognised Commodity Derivative Exchange in terms of Paragraph 5 of the Exit Circular, 2016.

6. In terms of the clause 7 of the Exit Circular 2016, the following conditions are, inter alia, required to be complied with by any non-functional commodity derivative exchange before it is granted an exit:

(a) Distribution of its assets subject to certain conditions as laid down in the Exit Circular, 2016 as well as the other guidelines that may be issued by SEBI, Government or any other statutory body from time to time.

(b) For the purpose of valuation of the assets of the exchange, submission of the report of a valuation agency appointed by SEBI. All the valuation charges shall be paid by the exchange.

(c) Quantum of assets for distribution will be available after payment of the following by the exchange: (i) Statutory dues including Income Tax; (ii) Transfer of Investor Protection Fund, or any such fund available with the exchange to SEBI Investor Protection and Education Fund (hereinafter referred to as the 'IPEF');

(iii) Payment of following dues to SEBI by the concerned exchange :-  Dues outstanding to SEBI and the annual regulatory fee;  The outstanding registration fees of brokers/trading members of such de-recognised exchanges as specified in the SEBI (Stock Brokers and Sub Brokers) Regulations, 1992, till the date of such de-recognition;  In case of any shortfall in collection of dues of the brokers to SEBI, the exchange will make good the shortfall; (iv) Refund of deposit (refundable) to the stock brokers including their initial contribution/deposit to Settlement Guarantee Fund/Trade Guarantee Fund.

(d) Contribution of up to 20% of its assets (after tax) towards IPEF taking into account, inter alia, the governance standards of the exchange and estimation of future liabilities.

(e) The concerned commodity exchange to set aside sufficient funds in order to provide for settlement of any claims, pertaining to pending arbitration cases, arbitration awards, not implemented, if any, liabilities/claims of contingent nature, if any, and unresolved investor complaints/grievances lying with it.

7. The condition mentioned in paragraph 6(a) above, is a general clause for necessary compliance by the Exchange.

8. In terms of condition mentioned in paragraph 6(b) above, SEBI in consultation with RCX, has on August 10, 2017 appointed M/s. A. D. Vyas & Co., Chartered Accountants, Rajkot as the valuation agency for verification and valuation of assets and liabilities of RCX. The valuation agency has submitted its final report to SEBI on October 10, 2017, which has been examined. In this regard, a written undertaking submitted by the Exchange on November 23, 2017 has also been perused.

9. With respect to the compliance of different conditions specified in the Exit Circular, 2016 and the condition with respect to settlement of liabilities by RCX, from the findings in the report submitted by the valuation agency M/s. A. D. Vyas & Co., and also from the undertaking dated November 23, 2017 (hereinafter referred to as the “Undertaking”) submitted by RCX, it is noted as follows: (a) With respect to 6 (c) (i) above, the valuation agency in their report has stated that there is no statutory liability pending with the Exchange. This has also been stated in the Undertaking submitted by the Exchange.

(b) With respect to condition mentioned in para 6(c) (ii) above, RCX did not have the Investor Protection Fund or any such fund.

(c) With respect to para 6(c) (iii) above, it is observed that RCX has paid the outstanding annual regulatory fees amounting to ₹50,000/- (Rupees fifty thousand only) for the financial year 2017- 18, vide RTGS dated November 14, 2017 through UCO Bank, Rajkot. Further, there is no outstanding registration fees dues of brokers/ sub-brokers.

(d) With respect to condition mentioned in para 6(c) (iv) above, RCX has no liability of refunding deposits to the stock brokers including their initial contribution.

(e) With respect to condition mentioned in para 6(d) above, RCX has contributed towards SEBI IPEF an amount of` ₹1,00,000/- (Rupees one lakh only), vide RTGS dated November 14, 2017 through UCO Bank, Rajkot.

(f) With respect to condition mentioned in para 6 (e) above, RCX has submitted in its undertaking that there are no arbitration disputes/investor complaints pending with respect to futures trading and that it will clear all the liabilities before distribution of assets of the exchange.

(g) With respect to its other liabilities, RCX in its Undertaking has stated that it does not have any third party liabilities or undisclosed liabilities in respect of futures trading in castor seed other than available in the balance sheet and other financial records submitted to SEBI.

(h) The Exchange has stated in its Undertaking that there are no claims lodged against the Exchange in respect of futures trading and the Exchange undertakes to assume complete responsibility for financial implications of any such claims against the Exchange that at any future date may arise.

(i) RCX in its undertaking has declared that to the best of their information and knowledge there are no cases pending before various legal forum in connection with futures trading.

10. I have considered the aforesaid facts pertaining to RCX and the relevant documents, valuation report, submission by the Exchange placed on record for the purpose of considering grant of exit to RCX in terms of the Exit Circular of January, 2016. It is observed that all the known liabilities as on date have been brought out in the valuation report. I note that RCX has substantially complied with the conditions contained in the Exit Circular, 2016 and has further submitted a written undertaking to state that it does not have any third party liabilities or undisclosed liabilities in respect of futures trading and that it undertakes to assume complete responsibility for financial implications of any such claims against the Exchange that at any future date may arise. Therefore, I am of the view that it is a fit case to allow exit to RCX in terms of clause 7 of the Exit Circular, 2016.

11. I, therefore, in exercise of the powers conferred upon me by virtue of Section 19 read with provisions of Section 11(1), Section 11(2) (j) of the Securities and Exchange Board of India Act, 1992 and Sections 4, 5 and 12A of the SCRA allow the exit of the Rajkot Commodity Exchange Limited, Rajkot, as a stock exchange and consequent withdrawal of recognition granted to RCX. I, hereby direct it to:- (a) comply with its tax obligations under Income Tax Act, 1961; (b) comply with the undertakings given by it to SEBI; (c) comply with other consequential conditions of Exit Circular, 2016; and (d) not to use the expression “Exchange” or any variant of this expression in its name and to avoid any representation of present or past affiliation with the stock exchange, in all media.

12. The order shall come into force with immediate effect. A copy of this order shall also be forwarded to the Income Tax Authorities, the Ministry of Corporate Affairs and the State Government of Gujarat intimating the exit of the Rajkot Commodity Exchange Limited, Rajkot and for appropriate action at their end as per applicable laws.

Sd/- DATE : January 09, 2018 MADHABI PURI BUCH PLACE : MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA