Sebi mulls MFs’ entry in commodity derivatives
After creating a consolidated risk management mechanism for the commodities market, the Securities and Exchange Board of India (Sebi) has decided to broaden participation to banks, mutual funds and other financial institutions.
“Since mutual funds are under our regulation it will be easier to permit them in commodities. For other players we have initiated talks with sectoral regulators,” Sebi Chairman U K Sinha said on Friday.
Sebi also wants to encourage competition in commodity derivatives so that no exchange has a monopoly in any sub-segment.
“Business among the three exchanges is not even. We are trying to ensure there is no undue risk by an overwhelming amount of business being conducted in one place,” Sinha said.
Sebi has permitted options trading in one farm and one non-farm commodity and has asked exchanges to propose their plans. “This should include the commodity in which they plan to introduce options and risk management preparedness,” Sinha said.
MCX prefers gold or crude oil and NCDEX prefers guar, mustard and soybean. Exchanges have also been given the job of finding option sellers.
Regarding the type of options that will be permitted, Sinha said, “What is permitted in equities will be permitted in commodities.” This means European options that have fixed maturities.
“Since mutual funds are under our regulation, it will be easier to permit them in commodities. For other players, we have initiated talks with sectoral regulators,” he added.
On allowing stock and commodity exchanges to enter each other’s turf, Sinha said it would take time as commodity exchanges were yet to set up their own clearing corporations. Sebi is yet to grant approval to the BSE, which had applied for trading in commodities a year ago.
“Farmers’ cooperatives, banks and other aggregators can hedge on commodity exchanges,” Sinha said when asked how farmers would understand commodity hedging.
Sinha said there was a need to introduce competition in the market for every segment within commodities, indicating new exchanges might be permitted. ICEX, anchored by the Anil Ambani-controlled Reliance Capital, has applied to re-launch commodity derivatives suspended in 2014. ICEX had also sought permission for derivatives trading in diamonds, which has been included in a recent notification of a list of commodities allowed for derivatives trading.
“Sebi has started inspecting warehouses to verify they store the quantity of commodities that they are showing and match the quality specified under contracts. We are in touch with exchanges to improve oversight of warehouses,” Sinha said.