PMS, MF play in commodity derivatives may get Sebi nod

In a crucial board meeting on Wednesday, the Sebi is likely to approve the much-awaited entry of mutual funds and portfolio management services in commodity derivatives, sources said.

In February 2017, UK Sinha, then the Sebi chairman, had said that allowing mutual funds in commodity derivatives was just a matter of time. However, the decision was delayed in absence of a framework for custodial services, like the existing one for equities, as custodians did not have experience to manage physical commodities.

A recently appointed working group on custodial services had suggested two models to address the issue. The first model suggested allowing custodial services in commodity derivatives, but leaving the responsibility of clearing services to clearing corporations. The second model suggested that warehouses be allowed to act as custodians, which the regulator may not prefer as warehouses are not directly controlled by Sebi but by clearing corporations. "The board is likely to approve the first model allowing custodial services in commodities, thereby enabling the entry of institutions like mutual funds," they said, adding that the board may also clear the proposal to allow portfolio management services in commodity derivatives.

The entry of mutual funds and approval to portfolio management services will deepen commodity markets. In an effort to fast track reforms in commodity derivatives market, Sebi earlier this month allowed extended trading hours.