Sebi Keen to Deepen Commodity Markets, Seeks Brokers’ Inputs
Mumbai: Integration of the commodity and equity brokerage arms, constraints on hedging, new products launch and market making in illiquid contracts were issues market regulator Securities and Exchange Board of India (Sebi) discussed with commodity broking firms and officials from big hedgers like ITC, Titan and Louis Dreyfus, said two persons aware of the goings-on. “The Sebi chairman was present at the meeting,” said one of the persons. “While no timeline was given, Sebi, which is committed to ushering in reforms into the 13-year old commodity futures market, seeks feedback from all the stakeholders.”
Currently, most equity brokers have set up wholly-owned subsidiaries which allow traders and investors access to bourses like MCX and NCDEX. In course of time, Sebi would allow brokers to merge the commodity subsidiary with the parent, allowing commodities and equities to be offered under a single umbrella in due course. Now, an investor wishing to trade commodity futures has to open a separate trading account from his equity and demat trading account. Hedgers on commodity exchanges spelt out the constraints faced in using platforms offered by metals and energy bourse MCX and farm bourse NCDEX.
They said position limits in the near month at 25% of overall exposure limit was "too little" and also that mid and far months were dogged by low liquidity. “Their feedback was sought on how to deepen the market and encourage more hedging.”
Also, aside from gold, silver, base metals and energy, and farm products like edible oils and chana, many contracts were illiquid. Brokers asked whether market making could be allowed to increase depth of the market. On new products, Sebi sought views and feedback from brokers on the type of products – options or indices – to be introduced and on their prospective contract design.
Sebi chairman UK Sinha