Sebi Seeks Legal Views on Commodity Options
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