Commodity participants keep fingers crossed

Sebi's new transaction charges will increase the cost of trading and hedging, say brokers

It was a packed gathering at the Trident, Nariman Point, at an event to mark the subsuming of the commodity markets regulator, the Forward Markets Commission, with its capital markets counterpart, the Securities and Exchange Board of India (Sebi).

Finance Minister Arun Jaitley, economic affairs secretary Shaktikanta Das and Sebi chairman U K Sinha all made exhortation to “not worry about development of commodity futures, including agricultural futures”. That was in response to the worry of players in the commodity markets.

Sinha said Sebi had ensured against disruption in the way the commodity markets are regulated. One sceptical broker said: “Sebi’s new transaction charges will increase the cost of trading and hedging. How the regulations evolve is also to be seen.”

“We are keeping our fingers crossed,” said an exchange sector executive on the regulations for agri commodities.

Several issues have come up before Sebi regarding agri commodity futures. For example, the price polling mechanism used for obtaining a settlement price. Sinha told the event, “Sebi will reform the commodities price polling mechanism adopted by the exchanges.”

Registration of brokers is in progress; it might take some months, says a leading broker. The transaction fee would impact liquidity and the already stressed jobbing margins. When the government had introduced a commodity transaction tax in 2013, segment volumes plunged significantly.

Many feel market development measures such as introducing new products like options and index futures and allowing more participants such as banks and foreign portfolio investors would take a long time. However, Sinha said, “In a few months, we will move towards the developmental aspects”, which soothed the nerves of many.

Another smoothening factor was the announcement that Rajeev Kumar Agarwal, wholetime member at Sebi, would oversee commodity derivatives. He was with FMC for around five years before coming to Sebi, at a time when regulations for commodity futures were evolving. He was looking after the policy aspects and hence “a person who understands commodities has been given the charge”, agreed most brokers.

A former regulatory official said the real challenge for Sebi would be to synchronise futures with the physical market. These issues, such as on handling of physical delivery and that of warehousing, would not be easy to tackle.

The person comparing the event said after the formal handing over to Sebi: “I can now see a smile on the face of outgoing FMC chairman Ramesh Abhishek and the Sebi chairman is silent. Perhaps because regulating a difficult stream of the financial markets are now with him.”