Sebi chief ’s grand plans to boost commodities market
Tyagi keen to improve farmer awareness, participation
The new chairman of the Securities and Exchange Board of India (Sebi), Ajay Tyagi, began his innings on a familiar pitch, laying down his vision for the commodities derivatives market. In his first public appearance on Saturday, since taking over on March 1, Tyagi told the international convention organised by commodity brokers in New Delhi that the market would be deepened by opening up to new participants and widened by introducing new products.
The event, organised by the Commodity Participants Association of India, was presided over by the Union Minister of Agriculture, Radha Mohan Singh. Other guests included Union Minister of State for Finance Santosh Gangwar, BSE Managing Director and Chief Executive Officer Ashish Chauhan and his Multi Commodity Exchange counterpart Mrugank Paranjape.
Sebi plans to introduce institutional players, such as alternative investment funds, portfolio management services, foreign participants, mutual funds, banks, and insurance companies, who would bring a more structured and research-based investment approach gradually.
Tyagi said, “Since inception, the commodities derivatives market was dominated by non-institutional players and the level of participation in agri-commodity was unorganised and uninformative, leaving a big void and a need to attract structured and research-based participation.” He added Sebi was working on permitting new participants, especially institutional ones to enter the market.
“All institutions cannot come in at the same time. It has to be done gradually,” said the 1984batch Indian Administrative Service officer.
Declaring the improvement of commodity markets as a priority, Tyagi hinted this would be part of several measures, the regulator was working on, to make the market more liquid and deepen it.
Keeping in mind the need for benefits of the market system to percolate to farmers and end-users, the regulator is contemplating measures to encourage the participation of farmers through farmer-producer organisations (FPOs). He added Sebi was in the process of finalising guidelines for options contracts in the segment and clearing a contract for diamonds, proposed by one of the exchanges.
Tyagi said, “Sebi has already accorded in-principle approval for trading of options. Detailed guidelines are being worked out and will be finalised soon by taking the matter to the board.”
The regulator had issued a discussion paper on this in January, but Tyagi’s predecessor U K Sinha stopped short of bringing the guidelines to the board. Some exchange officials said the plan might need amendments in the law, which could be introduced in the monsoon session of Parliament.
Tyagi also spoke about the six new contracts that have been permitted by the government. Of these, a new contract in soya bean meals has been trading for the past one month. Another contract, on diamonds, has been approved by Sebi and is likely to begin trading soon.
New products and new participants will help the regulator’s objective in creating a deeper and more vibrant commodities market.
Sebi plans to introduce institutional players who would bring a more structured and research-based investment approach gradually
The Sebi chairman said these measures would lead to “more exciting times for the commodity markets”.
Tyagi had played a significant role in the integration of the erstwhile Forward Markets Commission (FMC) with Sebi in 2015-16. So, it was no surprise that he chose to begin his stint by laying down plans for this segment, said participants at the convention. The integration followed the NSEL payments crisis, which had created a crisis of confidence in 2013.
“In September 2015, FMC was merged with Sebi as the existing regulatory framework was not adequate to address the regulatory needs. The merger has resulted in the convergence of regulations harnessing economies of scope and economies of scale for exchanges, financial firms and other stakeholders,” the Sebi chairman said.
After the merger, he pointed out, Sebi had taken steps to strengthen risk management, market surveillance and to safeguard interests of participants. “Though this may seem to result in additional costs of compliance, unless you build faith in the market, the participants would not come. This cost is for furthering and developing the market with resilience,” he said.
Tyagi added the regulator was deliberating on more measures for encouraging the farming community to ward off criticism and allegations of being a speculative market.
At present, about 65,000 farmers participate through 53 follow on public offers. The regulator added over 200 large mandis are integrated with the online spot market and more are in the process of joining. “It is constant the endeavour of Sebi to encourage exchanges to promote participation of farmers either directly or through FPOs,” said Tyagi.
Taking cues from the Prime Minister Narendra Modi’s vision articulated while launching the e-Nam platform last year, Tyagi said integration of spot and derivatives markets was one of the most challenging areas Sebi has been engaged with.
“Until and unless there is a close alignment with spot markets, the benefits can’t percolate to farmers and end-users, considering the fragmented and opaque nature of spot. The commodities exchanges and participants should work for better alignment in convergence of both markets. The finance minister has announced the setting up of an expert committee. Sebi will closely work with this committee, the government and stakeholders,” said Tyagi.
Another focus area was the integration of the commodities market with the rest of the securities markets, including currency, equities and bonds.