Mumbai: The Securities and Exchange Board of India (Sebi) is considering allowing universal exchanges that will provide a platform for trading in both commodities and equities, said G. Mahalingam, a whole-time member with the markets regulator.
A legal framework for universal exchanges would be devised in the next six months that will enable the national exchanges to trade in commodity and equity, said Mahalingam, speaking at the India commodity day organised by Multi Commodity Exchange Ltd.
According to Mahalingam, institutional participation in commodities markets will bring in liquidity.
“The first step was to allow alternate investment funds (AIFs) category-III as they have a risk appetite. The next step is to allow foreign portfolio investors or FPIs," said Mahalingam.
AIF category 3 funds are typically hedge funds.
Sebi has already taken the first step by allowing foreign investors in commodities that are being traded in the International Financial Services Centre or IFSC.
“Real progress will be achieved if they (FPIs) are participating in domestic commodity markets with prudent risk management measures," said Mahalingam.
Sebi is taking a steps in allowing mutual funds to invest in commodity markets and is in dialogue with Association of Mutual funds in India. It is also urging pension funds, insurance companies to invest in commodity markets.
“Some regulators may say it is a risky step but all markets are risky initially," said Mahalingam.
The entry product for mutual funds could be the gold exchange traded fund (ETF).
According to a person with direct knowledge of the matter Sebi will issue a discussion paper in the coming month proposing regulations to allow mutual funds and portfolio management services (PMS) in commodity markets.
To bring depth in the market, the Sebi board had allowed exchanges to launch options in August this year. Following this, the first gold options were launched on 17 October by MCX.