Exchanges to monitor commodity derivatives contracts performance

The Securities and Exchange Board of India (Sebi) has directed commodity exchanges to conduct a yearly performance review of all commodity derivatives contracts and send a report by June 30 every year. This has to also be disclosed to the public, said the circular, issued on Tuesday.

The order takes effect from April 1 and covers the current financial year. Each such exchange is to furnish a balance sheet (B/S) of all commodities, including volumes, open interest, etc, with trading details, besides naming 10 major producing and consuming countries.

Apart from a global B/S, the markets regulator has asked exchanges for details of each commodity from a domestic perspective — output and consumption, lifecycle details and the varieties/grades found in India, besides major changes in policy governing trade in the spot market of the commodity.

In addition, detail of geopolitical issues in the commodity and its impact on the Indian scenario.

Publishing global and domestic data of all commodities is expected to help hedgers and other participants to understand the market sentiment and take positions accordingly. This would also help participants to avoid a default in high volatility.

“The rational of having the derivatives market in agricultural commodities is hedging and, hence, understanding this market is very important. The details of commodities and participants will give more comfort to traders. This will boost their confidence and strengthen the entire commodity eco-system,” said Kapil Dev, agri-business head at the National Commodity & Derivatives Exchange, the country's largest in futures trading for this segment.

In addition, for each exchange to give details of participant types — farmers, hedgers, farmer producer organisations and so on.

Sebi has said: “It is imperative to have a framework to evaluate the performance of these contracts based not merely on statistics regarding delivery and trade volumes but also on t he strength of a comprehensive empirical assessment, after considering all relevant information pertaining to the performance of a derivative contract during the relevant period of time.” The bourses have been asked to discuss with their product advisory committees and then disclose prominently on their websites.

“Commodity exchanges will have to share their data with Sebi. This was very much required and would bring in more transparency,” said Narinder Wadhwa, president, Commodity Participants Association of India.

“The whole idea is to align the spot market with the futures market,” said Naveen Mathur, director (commodities and currencies) at Anand Rathi Shares and Stockbrokers.

Globally on exchanges, says Dev, open interest ranges from 20-30 per cent of production.

Each such bourse to furnish the B/S of all commodities, including volumes, open interest, etc, with trading details, besides naming 10 major producing and consuming countries