The Securities and Exchange Board of India (Sebi) is planning to allow mutual funds, banks and insurance companies to participate in commodity derivatives market said Sebi chairman UK Sinha on Friday.
Sinha said after the merger of the Forward Markets Commission (FMC) with Sebi on September 28, 2015, the market watchdog has taken several steps to ensure proper risk management and improved surveillance for the commodity markets.
“If we look at background in which all of this has happened, our first priority had been and will continue to ensure that there is very active surveillance and the risk management system on the commodity side as robust and as strong as Sebi has been developed on the security side, “ said Sinha.
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The fraud at the National Spot Exchange Ltd prompted Centre to merge the FMC with Sebi to improve regulation of the commodity market. Since the merger, Sebi has tightened surveillance mechanisms and introduced a slew of norms to deepen the market.
Earlier this week, Sebi allowed trading options on the commodity derivatives exchanges. Before this Sebi introduced several new concepts to deal with the risk prevalent in the commodities market. Some of them include– enhancement in initial margins to have better risk coverage, concentration margins on big positions and tools for handling default such as liquidation in normal market and auction of positions.
“We will go for cautious development in the commodity derivatives market and the caution that we are exercising is primarily to align the system on the commodity derivatives side to those on the equities side,” said Sinha.
Sebi has laid down elaborate guidelines for ‘minimum standards’ and ‘governance’ to improve the standards of warehouses and develop the warehousing sector said Sinha. Earlier this year, the regulator had constituted an Advisory Committee, headed by Prof. Ramesh Chand, Member of NITI Aayog, to discuss most important issues of the commodities market such as improving hedgers participation, improving liquidity of the contracts, having objectives criteria for introducing new commodities to the futures trading, improving price polling mechanism and bringing new participants, institutional as well as non-institutional to the market.
Apart from announcements of the commodity issues, the regulator on Friday said that it was prepared for severe market volatility at all times.
“In addition, Sebi is in continuous dialogue with the exchanges. For example since yesterday (Thursday) morning we were constantly monitoring the fact whether there were any chances of default across the market-place or not, whether positions were heavily loaded (skewed) or not which could eventually lead to a default. Alerting markets and keeping communication lines open on a continuous basis with the markets is an exercise we do routinely when such situations arise,” said, Rajeev Kumar Agarwal, Whole-Time Member of Sebi.