SEBI says no to futures trading in new commodities

MUMBAI (Reuters) - India will not allow futures trading in new commodities unless assured of sufficient liquidity, a top official at the Securities and Exchange Board of India (SEBI) said on Thursday, three years after a scandal dealt a blow to confidence in the country's commodities markets.

India allowed futures trading in commodities more than a decade ago, but the volumes in several commodities such as chilli peppers, wheat and corn were thin as institutional investors like banks and mutual funds were not allowed to trade.

"SEBI has been very careful in allowing trading in new commodities. We want to do that but we will be doing it very carefully," SEBI Chairman U.K. Sinha said on the sidelines of a Thomson Reuters Risk Summit.

"Unless we are assured that there's enough liquidity likely in some commodities, we will not consider that."

India last year merged its commodities market regulator, the Forward Markets Commission (FMC), with securities markets regulator SEBI.

Sinha said the management of risks in the commodities market has not been as effective as in the stock market, adding the regulator was constantly trying to improve the system.

"A thorough review of this exercise is going on. It will take us still a few months.... to bring it to the same level as the securities market," he said.

In July 2013, a commodities spot exchange, the National Spot Exchange Ltd, abruptly suspended trading in most of its contracts, with an FMC investigation subsequently showing what it said was a 55 billion rupee ($827.44 million) fraud.

"The problems in the physical market and also the stage of development of the warehousing mechanism in this country doesn't give us the comfort that we can progress in a big way immediately," Sinha said.

($1 = 66.4700 Indian rupees)

(Reporting by Rafael Nam and Abhirup Roy; Writing by Rajendra Jadhav; Editing by Biju Dwarakanath)