The Warehousing Develop-ment and Regulatory Authority (WDRA), India’s decade-old regulator for the sector, is working on norms for non-agricultural commodities. So long, the authority was regulating warehouses storing agricultural commodities.
The requirements for warehouses and the applicable norms differ for agri and non-agri commodities. The move is significant because institutional investors are not comfortable dealing with unregulated entities.
The Securities and Exchange Board of India (Sebi) has permitted mutual funds and hedge funds, apart from portfolio investors, to invest in commodities.
Simultaneously, the capital markets regulator has mandated the exchanges to settle derivatives of all commodities, except crude oil and natural gas, in deliveries.
Institutional investors have to deal with custodians who are not comfortable taking deliveries, but derivatives trades can result in deliveries.
A reason for custodians to stay away from deliveries is the fear of an NSEL-type default, given that warehouses storing non-agri commodities are not regulated. With agri warehouses being regulated, electronic negotiable warehouse receipts are also issued against goods stored with them and commodity derivatives exchanges have made it mandatory for traders to have such receipts.
However, there has also been demand from users of non-agri commodities to have warehouses regulated.
Sebi had recently set up an internal committee to prepare norms for warehouses approved by regulated derivatives exchanges for non-agri commodities. It held a meeting of all stakeholders last week regarding this.
Sebi is co-ordinating with the WRDA to expedite the regulations for warehouses storing non-agri commodities.
Exchanges also approve warehouses, and traders on those exchanges have to deal through those only.
Warehouses storing agricultural commodities need to meet certain specifications. These include maintaining storing commodities at a height so that commodities are not spoiled if there is water-logging, moisture control, and other similar provisions.
For warehouses storing non-agri commodities, such stringent norms are not needed but the number of warehouses storing non-agricultural commodities is greater. Commodities like metals, being more dense, need less space and there are many users.
Unlike agri commodities, the WDRA has no regulations for metals.
Sebi regulations for agri commodities suggest that only WDRA-regulated warehouses can be approved by exchanges. Hence Sebi has begun to prepare standards for commodities to be stored.