Skip to main content

Sebi, FinMin draw road map for commodities market

U K Sinha said immediate priority is to bring the commodities derivatives market at par with securities market

Securities and Exchange Board of India (Sebi) chairman U K Sinha on Tuesday with met finance ministry officials and discussed the major reforms required to strengthen the commodity market, said sources in the know.

Sebi chief told the ministry that its immediate priority is to bring the commodities derivatives market at par with the securities market. The regulator intends to introduce new products and categories, including options trading, to ensure better liquidity and fair price discovery.

  • To bring commodities derivatives market at par with securities market
  • To bring new products and new categories of participants in the space
  • Options trading in commodity futures
  • Allowing banks, mutual funds, AIFs, foreign hedgers in the space
  • Single licence for commodity and equity brokers

The commodity derivatives has come under Sebi's purview since September 28, 2015 following the merger of the erstwhile commodity regulator Forward Markets Commission (FMC) with it. (SMOOTH TRANSITION TO SMART REGULATION)

Introduction of options by commodity market is understood to be uppermost on the agenda and may likely get in principal approval by Sebi later in this week, said a person cited above.

Initially, one commodity in each segment that is agri and non-agri would be allowed for introducing options. Accordingly, exchanges will be asked to submit roadmap for options, the person added.

However, Sebi will have to deliberate from the perspective of technology, the infrastructure required and settlement processes of options trading. In securities, as well as globally in many developed markets, options are cash-settled. In India, commodity futures also have delivery settlement. Sebi is likely to decide on this soon.

Secondly, Sebi may also allow single license for equity and commodity brokers as they still adhering to different guidelines and requirements. The issue has been discussed in several meetings after the merger and said to have taken up with ministry officials on Tuesday.

Allowing banks, mutual funds, alternative investment funds and foreign hedgers in the commodity futures market which has been discussed for years may also get Sebi nod.

With the merger process completing, the regulator will now notify all related new regulations pertaining to amendments bought for commodity market to enable functioning of the commodities derivatives market and its brokers under the ambit of the capital market regulator.

Finance ministry officials have been briefed on the steps and amendments made by it in last one year.

Sebi also highlighted the difficulties in regulating the commodity market and the challenges ahead.

"Challenges emanate from underlying markets, which are "fragmented, dispersed and not under its regulatory purview", Sinha had said in Sebi's annual report for 2015-16.

The Sebi-FMC merger was triggered by the Rs 5,600-crore National Spot Exchange Ltd (NSEL) crisis, which had shaken the entire commodity market in 2013, the scam, which challenged the regulatory framework, transparency and credibility in the commodity space with 13,000 investors losing their money in a systematic and premeditated fraud perpetrated on a commodity exchange.

Business Standard, New Delhi, 28 September 2016


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …