Both the National Stock Exchange of India Ltd (NSE) and BSE Ltd had sought permission to launch commodity trading on their exchanges after Sebi began regulating the commodity markets last year.
“The applications of the two leading stock exchanges to have a separate commodity trading platform have been kept in abeyance as the market regulator feels that the commodity market needs to have more depth and better risk-management practices," said one of the persons quoted above, requesting anonymity.
A second person added that the regulator initially wants to focus on having more participants in the commodities market.
“Sebi would first like to see more players participate in the market rather than allowing exchanges to diversify," said the second person. He also declined to be identified.
An email sent to a Sebi spokesperson on Monday did not elicit a response.
In an email, an NSE spokesperson said, “We prefer not to comment on any speculation and generally on all matters related to regulators."
A BSE spokesperson declined to comment.
The market regulator, in consultation with the Commodity Derivatives Advisory Committee, is working on allowing newer participants in commodity derivatives trading. Currently, financial institutions, banks, mutual funds and foreign portfolio investors cannot participate in the commodities market.
The issue was discussed at a meeting between commodity market participants and the regulator on 22 April.
“The question was raised whether stock exchanges will be allowed to do commodities trading or if commodity exchanges can be allowed in securities trading," said a commodity market participant present at the meeting, on condition of anonymity.
“Sebi will have to clear the constraints or revise the bye-laws before stock exchanges can initiate commodity futures trading," he added.
The NSE had sought approval from the market regulator to launch a commodity futures trading segment earlier this year.
“We are exploring the possibilities in the commodity derivatives segment. Recently, we have written to Sebi. We expect to hear from them soon about a broader framework among other things," an NSE official was quoted as saying by The Economic Times in a report dated 6 April.
The NSE currently has a 15% stake in the National Commodity Derivatives Exchange (NCDEX).
The BSE, on its part, approached Sebi in October 2015, seeking to get into commodity futures trading as a segment on the exchange.
Earlier, in January 2015, the BSE had applied to Sebi for a separate commodity exchange and received approval. However, after the September 2015 merger of Sebi with the erstwhile commodity regulator—Forward Markets Commission—the BSE decided to launch commodity trading as a segment rather than as a separate exchange.
“Sebi has not given its approval to stock exchanges to trade in commodities yet. But we are keen to launch the segment for commodities," BSE managing director and chief executive Ashishkumar Chauhan told news agency Press Trust of India on 12 October 2015.
Stock exchanges such as the NSE and BSE offer trading in equities, equity derivatives, currency derivatives, interest rate derivatives and corporate bonds, among others. On the other hand, commodity exchanges such as the Multi Commodity Exchange (MCX) and NCDEX offer trading in precious metals, base metals, energy and agricultural commodity futures.
Stock exchanges are much larger than their commodity counterparts. The average daily turnover of equity derivatives on the NSE alone was ₹ 2.96 trillion in the calendar year till March 2016. In the same period, MCX’s average daily turnover was ₹ 23,588 crore and that of NCDEX ₹ 2,847 crore.
“Sebi is creating a level playing field by restricting the established players (stock exchanges) from offering trading in the still-growing commodity market. This will also curtail the possibility of domination by a few participants," said Arun Kejriwal, director, Kris Securities Ltd.