Sebi working on entry of banks, MFs, FPI in commodity markets

Market regulator Securities Exchange Board of India (Sebi) is planning to allow new participants like banks, mutual funds and foreign portfolio investment (FPI) in commodity market. The regulator met with commodity market participants on Friday, where the issue was discussed.

The participation of these entities and certain other alternative investment funds in commodity derivatives trading is pending for regulator approval for quite some time.

The meeting was part of the regulator’s effort to increase participation in the commodity market space.

The regulator is contemplating all possible ways to integrate commodity and equity space to reduce the asymmetry between the two which would be beneficial for both the markets, said industry players who attended the meeting.

The regulator is planning to revamp commodity market by putting out several measures, which could eventually reduce risks and improve liquidity.”The purpose is to have seamless operations in both the segments which has been a challenge since commodities market regulator, Forward Markets Commission, was merged with Sebi in September 2015,” said a source who participated in the meeting.

The meeting was attended by representatives of the commodity exchanges brokers, traders, hedgers and physical market players.

Sebi indicated that they are working on the new hedging mechanism to increase volumes. It is also keen on allowing portfolio management services in commodity.

Regulator also discussed the idea proposed that financial institutions should participate in commodity derivatives market as hedgers, whether the hedging is for their own position, like in the case of bullion.

The representative from commodity brokers has proposed introduction of new exchange-traded products such as options based on commodities, silver ETF etc to have better connectivity between physical market an commodity exchanges.

The new commodity derivatives products such as options and index futures, index options has been also discussed in the meeting, said a source cited above. At present, only futures contracts are allowed in the commodity derivatives trading space.

Sebi reteriated and ensured the representative of commodity space that they will have single license for both equity and commodity exchanges during this year.

Regulator also took a view on price polling mechanism and introduction of new mechanism.

Meanwhile, commodity brokers raised concerns on the margin which is substantially lower as compared to equity and requested regulator to rationalize the same.

Regulator asked the representative to submit detailed proposals discussed in the meeting.

Sebi mulls entry of banks, MFs in commodity markets