Sebi plans to integrate market intermediaries

Current rules do not permit an equity exchange to trade in commodities and vice versa

The Securities and Exchange Board of India (Sebi) is currently weighing integration of intermediaries such brokers in the derivative markets before integrating exchanges for allowing commodities and equity/currency on one platform.

The current Sebi regulations do not permit an equity exchange to trade in commodities and vice versa. Separate exchanges, therefore, are required to offer trade in different financial segments.

Similarly, market intermediaries such as brokers require to float separate entities for facilitating trade in equities/currencies and commodities. Sebi is working on the integration of brokers and members to facilitate trade either on their own behalf, that is, proprietary trading, or client-based trading under one umbrella company. As a result, the need for a separate subsidiary for each segment will be dispensed with.

Confirming the development a Sebi source said, "Currently, we are weighing integration of brokers and other intermediaries to facilitate trade under one umbrella in all segments and financial instruments. We are working on it. Once, integration of intermediaries is complete, we would consider integration of exchanges."

Meanwhile, market participants have made several representations to the regulator seeking integration of all segments especially equity/currency and commodities under one entity. Following success of the Multi Commodity Exchange (MCX) and National Commodity & Derivatives Exchange (NCDEX), equity trading platform Bombay Stock Exchange (BSE) has already proposed to set up its own commodities trading arm. The exchange has already set up its commodity experts' team to initiate preparations for commodity futures trading.

Also, National Stock Exchange (NSE) is holding 15 per cent stake, the maximum an equity exchange can have in any commodity exchange, in NCDEX.

Participants argue that integration of brokers will benefit clients a lot. "There has been a separate request for transfer of margins from one segment to another by clients on regular basis. In the process, a client, in many cases, fails to use margins to the full extent in one segment while receiving separate margins call from another segment of the trade. Sometimes clients' positions are cut automatically for insufficient margins in one segment despite having sufficient balance on the other. Following the integration, such problems would disappear which would ultimately benefit clients. For brokers, compliance cost would also decline significantly. Even audit of all accounts would be done together which will benefit brokers," said Shiv Kumar Goel, President, Commodity Participants Association of India (CPAI).

Apart from brokers, the regulator is looking to integrate other intermediaries in the value chain. The Sebi source said that the regulator wants to incorporate the best practices, in order to help the markets move up the value chain. However, the regulator wants to go fully prepared with no gaps in regulation, in order to integrate exchanges and intermediaries with each other, the source said.

Without specifying any timeline, the source said, "We are working on integration of members first which would take some time for the actual implementation."

Trade sources believe that Sebi has put forth a number of reform measures for the financial year 2017-18.