Summary of this article
Sebi panel will recommend easing restrictions on commodity derivatives
Sebi panel will recommend lifting the ban on derivatives trading on several agricultural commodities
A Securities and Exchange Board of India (Sebi) panel will recommend easing restrictions on trading in commodity derivatives and suggest ways to attract more institutional investors, a Reuters report said. The final report with suggestions will be submitted by the panel early next year, the agency reported, quoting three sources with knowledge of the development.
Sebi Chairperson Tuhin Kanta Pandey had said that India’s commodity markets need to be deepened. “Strengthening India’s commodity markets is high on SEBI’s regulatory agenda, and it aims to deepen and widen participation, Pandey had said. So far under Pandey’s leadership, Sebi has liberalised norms for equity markets.
The Sebi panel will recommend lifting the ban on derivatives trading on several agricultural commodities, the report said. These include paddy, wheat, and crude palm oil.
Regulators have repeatedly warned against derivatives trading due to concerns over speculative trading. Fears that speculative activity on these widely consumed commodities will spill into spot prices and manipulation in their physical demand also led to repeated bans on derivatives trading of these agricultural commodities.
The report said that the Sebi panel will present data to show that price trends of these commodities have not moved significantly after the ban on trading, to suggest that the ban had little impact on agricultural commodity prices. The members suggested that the ban is not warranted since it did not have much impact in changing prices, to which the Sebi management also agreed, two sources told Reuters.
The panel will also recommend changes to the tax laws of the country to define the tax rate of commodity derivatives under goods and service taxes (GST), the report said.
The panel will recommend that trading firms be allowed to simultaneously locate trading commodity derivatives on exchanges, the agency reported. Co-location will allow faster access to data and trading. This is currently permitted for equity trading but not for commodities.
"Most of the global firms trade via colocation so the panel and SEBI are inclined to allow it in metals and energy. On agri-commodities there have been historic inflationary concerns," so this segment may be excluded from colocation,” Reuters reported a source as saying.
The panel will also recommend a reduction in margin for agricultural commodities to boost trading.
"SEBI is waiting for the panel's report before it approaches Reserve Bank of India (RBI) and government with a formal proposal for bank, pension fund, and insurance companies to trade in commodities,” the agency reported a source as saying.
