Sebi Seeks Le­gal Views on Com­mod­ity Op­tions

The Economic Times - - Markets: Beating Volatility - Our Bu­reau

Mum­bai: The Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) is seek­ing le­gal clar­ity on its ex­ist­ing rules be­fore al­low­ing op­tions trad­ing in com­modi­ties de­riv­a­tives.

“The­o­ret­i­cally, there are three al­ter­na­tives that the set­tle­ment should take place in phys­i­cal de­liv­ery or in cash or should be set­tled on price dis­cov­ery. The con­sen­sus view is that we should get along with the third op­tion, that is price dis­cov­ery. That is set­tle­ment should take place based on the fu­ture price of that de­riv­a­tive. Legally, we are look­ing if it can be done by amend­ing the reg­u­la­tions of Sebi, SECC (Stock Ex­changes & Clear­ing Cor­po­ra­tions) or does it re­quire amend­ment to SCRA (the Se­cu­ri­ties Con­tracts Reg­u­la­tion Act) reg­u­la­tions where the word se­cu­ri­ties and de­riv­a­tives are de­fined,” Sebi chair­man UK Sinha said at the side­lines of an in­ter­na­tional con­fer­ence on com­modi­ties de­riv­a­tives or­gan­ised by Sebi.

“In fact, in the last board meet­ing of Sebi, we had taken up a pro­posal that SECC reg­u­la­tions should be amended so that we could launch op­tions very quickly, but a view emerged in that meet­ing that this needs fur­ther ex­am­i­na­tion from a le­gal point of view whether this re­quires an amend­ment of the SCRA or Sebi is com­pe­tent to change its reg­u­la­tions, this is the stage we are in. Our view at this stage is this can be done by Sebi but oth­ers in the board felt that let’s look at it more closely,” Sinha said.

The reg­u­la­tor is in talks with the fi­nance min­istry to re­solve the is­sue soon.

Sinha, whose term as Sebi chief is end­ing on March 1, said to en­hance liq­uid­ity in the com­modi­ties fu­tures mar­ket, the reg­u­la­tor will al­low in­sti­tu­tional in­vestors to trade shortly.

Mu­tual funds are likely to be the first to get ac­cess to the com­mod­ity de­riv­a­tives mar­ket, Sinha said.

Sebi is also in dis­cus­sion with the Re­serve Bank of In­dia to al­low banks to par­tic­i­pate in the com­modi­ties de­riv­a­tives mar­ket. Banks have huge ex­po­sure to com­modi­ties through their lend­ing pro­grammes and they need to hedge the risk. “Our ar­gu­ment with RBI has been, in any case banks have huge ex­po­sure to com­modi­ties through the lend­ing pro­gramme. We have been ask­ing them Why don’t you dis­close that? Let a be­gin­ning be made by the cor­po­rates in dis­clos­ing that and then you your­self will dis­cover that there is a need to al­low them to hedge also. We are at an early stage of di­a­logue and part of the rea­son is how com­fort­able RBI is about the fi­nan­cial health of a bank, so they will also have this as a con­cern when they take that call,” Sinha said.

On the re­cent de­vel­op­ments at two large cor­po­rate houses where cor­po­rate gover­nance con­cerns were raised, the reg­u­la­tor said any in­put it re­ceives from any source would be taken to its log­i­cal end.

“Sebi does not be­lieve that just be­cause some al­le­ga­tion has been made, it is true. We have to ap­ply our mind and fol­low the due process. All I can as­sure you that af­ter check­ing and in­ves­ti­ga­tion, we come to a find­ing that some­thing wrong has hap­pened, they will not be spared how­so­ever big or small they are,” Sinha said.

Sebi chair­man UK Sinha

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