Home / Market / Stock-market-news /  Need to grow commodity derivatives: Sebi

Mumbai: The Securities and Exchange Board of India (Sebi) is in favour of introducing more products and allowing more participants in the commodity derivatives market, but in a gradual manner and in the best interest of stakeholders.

Speaking at an event to mark the formal merger of the Forward Markets Commission (FMC) with the market regulator, Sebi chairman U.K. Sinha said the priority is to take stock of the situation in the commodity market and make efforts so that intermediaries have trust in the manner regulation will evolve.

“There is no reason why options trading should not be allowed in commodity derivatives market. There is no reason why participants like banks and foreign portfolio investors that are not allowed today should not be allowed. Exchanges can be allowed to offer both commodity and equity trading. These will be done over time gradually. It is not the immediate priority," said Sinha.

Union finance minister Arun Jaitley who was present at the event said the merger will help intermediaries benefit from economies of scale in a robust regulatory environment. “Sebi has matured over the years and is a fair, independent regulator. I don’t see Sebi taking time to meet the challenge," Jaitley said.

The Sebi-FMC merger was announced by the finance minister while presenting the Union budget in February. “The merger will lead to better convergence of price from the physical market into the derivatives market. FMC has done a lot, but there are areas where more needs to be done. We will focus on better pooling of prices in a more transparent manner. But we will be very cautious in our approach, and enhance our technology and human resources," said Sinha.

The Sebi chairman also highlighted the fact that barring the US and Japan, most countries have a single regulator for equity and commodity markets. In the US, the Securities and Exchange Commission regulates equity market, while CFTC (Commodity Futures Trading Commission) monitors commodity derivatives.

“This (merger) took 12 years, but globally as well such measures take time. In the US, there have been efforts to have a single regulator and issues like lack of coordination have been well-documented," said Sinha.

Sebi did a lot of consultation in order to ensure that the transition is non-disruptive and there is no discontinuity in regulatory requirements, he said.

FMC chairman Ramesh Abhishek said that the merger has addressed the mismatch between regulatory structure and the large commodity derivatives market. “FMC did not have powers to investigate intermediaries and impose penalties, which is required by every regulator," he said, and added that a large number of people are affected by what happens in the commodity market.

On a lighter note, the finance minister said the reform was possible only due to the wisdom of the architects of the Indian Constitution.

“The Constitution allows money bills to be passed only by a positive vote in the Lower House and a discussion in the Upper House. The writers of the Constitution ensured that deadlocks do not affect the country’s growth story," said Jaitley.

Suresh Nair, director of ADMISI Commodities Pvt. Ltd, a financial advisory firm, said the commodity market is optimistic with Sebi taking over the regulatory role of the futures market, though there are certain challenges. “Sebi has more powers to search and investigate, and also impose penalties that would act as a major deterrent for those trying to disrupt the safety of the markets. But the real challenge will be the integration of the spot and futures markets," said Nair.

“The confidence and trust in the market will go up with the presence of an autonomous regulator. Sebi chairman reiterated that the transition will be gradual, seamless and non-disruptive in nature. Market development is also high on Sebi’s agenda, which is another positive," said Naveen Mathur, associate director (commodities and currencies) at Angel Broking Ltd.

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