Sebi to bring in transparency in price polling

Regulator's panel on commodities gathering inputs on better rules

The Securities and Exchange Board of India (Sebi) is exploring ways to remove discrepancies in the price polling mechanism used for settlement of futures contracts.

Spot agri commodities markets in India are unorganised, with traders quoting different prices. Commodity exchanges have tried best to arrive at a standard price almost similar to the prevailing market price through speaking to large and reliable traders in various mandis across the country, which is termed as polling. Such benchmark price is used for the settlement of futures contracts also.

But, it is learnt that Sebi has referred this matter to its internal committee on commodities market to chalk out a more transparent mechanism, which is of global standards. "The current system of price polling can be manipulative and lead to price rigging. We are looking to devise a more transparent mechanism to arrive at the spot price of commodities. We could have the rules released soon," said a senior official on condition of anonymity.

The issue was also debated upon in Sebi's International Advisory Board (IAB) meeting.

"The IAB suggested it needs to be ensured that the rules are fair, that nobody is manipulating the markets and that if somebody speculates, it should not put the markets at risk," said IAB in a press statement.

Sebi also noted that many researches have indicated poor correlation between spot prices and future prices of commodities in India. IAB suggested that the present price polling system needs to be suitably reviewed. IAB also suggested that both physical and cash settled contracts to be allowed to continue.

Sebi may look at regulating and prescribing certain financial obligations on the agencies participating in the price polling framework to ensure better accountability. There would be some sort of a close watch on the physical markets to reduce asymmetry between the polled and the actual spot price.

"Sebi wants IOSCO standard to be followed for price polling in agri commodities. Our standard of price polling is conforming to 80 per cent of IOSCO standard. But, there is still some room for improvement, which may not be possible unless the physical markets are upgraded of the same underlying commodities to source a benchmark price," said Jayant Nalawade," said Jayant Nalawade, chief exchange-operations, National Commodity & Derivatives Exchange.

Currently, Libor is polling price for some commodities. But, their system of polling was questioned by the international regulator. But, the most important concern Sebi raised is to have a legal agreement of the traders who participate in the price polling.

Primarily the data on spot prices is captured at the identified basis centres by inviting price quotes from the empanelled polling participants representing which includes viz. traders/ brokers, processors, importers/ exporters and users.

Active players in the market belonging to different segments in the value chain are chosen as polling participants to ensure that they are aware of the prevailing prices.

PRICE POLLING

• Sebi wants a more transparent system for price polled; rules could be out soon
   
• May look at regulating and prescribing certain financial obligations on the agencies participating
   
• Could keep close watch on physical markets to reduce asymmetry between the pooled and the actual spot price