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.

WHAT NEXT?

• 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.