 "Sebi strengthens comexes’ risk management")
The Securities and Exchange Board of India (Sebi) has taken several recent decisions, which indicate it is preparing commodity exchanges (comexes) for the next stage of reforms.
It has tightened norms for the agricultural segment and loosened circuit limits for non-agri commodities, while doubling the margins for all commodities. And, allowed exchanges to reduce transaction charges and improve liquidity. Also, it has decided to allow introduction of options trading and index futures, besides allowing new market participants - banks, mutual funds and foreign hedgers, which trade with India.
At the end of September, Sebi completes a year of regulating the commodities markets. Many of these initiatives have been timed to take effect from the anniversary (September 29), when the then regulator, Forward Markets Commission (FMC), was merged into the capital markets regulator, and commodity derivatives also became Sebi’s responsibility. All regulations of FMC were to remain in force for a year, unless changed in between.
Sebi has been trying to align the commodity market regulations with those of equity markets, while ensuring genuine hedgers in commodities get more room to operate.
Vijay Sardana, an expert on commodity derivatives, says: “This market needs stability and depth; it is good that Sebi is addressing these issues.”
“The recent initiatives regarding margins, daily price limits and others indicate the markets regulator is ensuring comexes’ risk management becomes robust, ahead of introducing the next stage of reforms, including allowing new instruments like options trading in commodities and index derivatives,” said Jayant Manglik, president, retail distribution, Religare Securities.
Some are not complimentary, saying the aligning of commodities regulations with equities for administrative simplicity might not work, as the former market is still in a nascent stage, unlike the latter. “Many measures - like increasing margins for covering two days of price risk and some other measures in line with equity markets - look shallow from a regulation perspective, as that might create a hurdle for the market to grow,” said a broker, with presence in commodities and equities, who did not want to be named.
Especially so, add others, in commodities where price movements are largely determined by global prices, such as in precious metals or energy. A two-day margin cover is not needed globally in most commodities, said a broker, adding, however, that for agri commodities, Sebi’s cautious approach is understandable on the tightening of margins and position limits, “though suspending of contracts as in the case of chana (chickpea) hurts overall sentiment”.
Sebi has also allowed comexes to reduce transaction charges, only for improving liquidity and volumes.
With effect from Sept 29
- Relaxed daily price limit movement for non-agri commodities
- Doubled margins for commodities to take care of two days’ price movement risk
- Comexes may cut transaction charges to increase liquidity
- Penalty on brokers for short collection of margins from investors
- Transparency in spot price pooling norms for all exchanges, with separate norms for regional comexes
- Opening position limits for hedgers, exchanges made virtual counter-party guarantor, default waterfall implementation in two stages
