Sebi mulls entry of banks, MFs in commodity markets

The market regulator is contemplating all possible ways to integrate commodity

The Securities and Exchange Board of India (Sebi) might allow new participants such as banks, mutual funds and foreign portfolio investors in the commodity market.

The regulator met commodity market participants on Friday, where the issue was discussed. This was part of the regulator’s effort to increase participation in the segment.

The participation of these entities and certain other alternative investment funds in commodity derivatives trading has been awaiting regulator approval for a while. Sebi is contemplating ways to integrate the commodity and equity space, to reduce asymmetry between the two, said people who attended the meeting.

The regulator is also planning measures to reduce risks and improve liquidity in the commodity market. "The purpose is to have seamless operations in both the segments, which has been a challenge since the Forward Markets Commission was merged with Sebi in September 2015," said a source who participated in the meeting. It saw representatives of the commodity exchanges brokers,  traders, hedgers and physical market players.

Sebi indicated it was working on the new hedging mechanism to increase volumes. It is also keen on allowing portfolio management services in commodities.

The meet discussed the idea that financial institutions participate in the commodity derivatives market as hedgers.

Commodity brokers proposed introduction of exchange-traded products such as options based on commodities, to have better connectivity between the physical market and commodity exchanges.

New commodity derivatives such as options and index futures were also discussed, said a source. At present, only futures contracts are allowed in the commodity derivatives trading space.

Sebi reiterated it would ensure a single licence for both equity and commodity exchanges during this year.

Commodity brokers raised concerns on the required margin, substantially lower as compared to equity markets.