Sebi favours foreign players in commodity market

After merging commodity regulator Forwards Markets Commission (FMC) with itself, the Securities and Exchange Board of India (Sebi) said its immediate priority would be to ensure stability and bring confidence and trust in the regulatory environment.

"Going forward, Sebi will initiate a series of measures to develop the commodities derivatives segment," said U K Sinha, chairman, Sebi.

Sebi will introduce measures to bring depth in the commodity market but in a phased manner. This will include the participation of both domestic institutions like banks and foreign players.

"Those participants who are not allowed to participate in the commodity derivative market today will be permitted to trade. There is no reason why participants like banks and foreign portfolio investors should not be allowed.

These will be done over the time gradually," said Sinha, adding that it is not the immediate priority.

The idea of a unified regulatory architecture, which has been debated within the government for a long time, was triggered by the National Spot Exchange Ltd (NSEL) crisis in 2013. The Rs 5,600 crore scam saw the FMC being brought under the finance ministry from the consumer affairs ministry, and now finally merged with Sebi, which is younger but more experienced in capital markets.

Sebi also indicated that it is in the favour of introducing more products. "There is no reason why options trading should not be allowed in commodity derivatives market. Exchanges can be allowed to offer both commodity and equity trading. The products which are not being allowed today will be also allowed to trade," Sinha said.

However, Sebi wants to first ensure a smooth transition. It will also concentrate to ensure that there is no major divergence in the physical and the derivative markets.

Finance minister Arun Jaitley said the merger will help intermediaries benefit from economies of scale in a robust regulatory environment. "Sebi has matured over the years and is a fair, independent regulator. I don't see Sebi taking time to meet the challenge," Jaitley said.

The government had proposed the merger of FMC with the market watchdog in Budget 2015.

Shaktikanata Das, secretary, Department of Economic Affairs, said, "Unleashing the process of reforms is a continuous process. We don't wait for the Budget."

Sebi's whole-time member Rajeev Kumar Agarwal would oversee the commodities market regulation in the merged entity under the overall guidance of the Sebi chairman.

The commodity exchanges view this as a welcome step. They are hoping for growth and transparency in the segment.

P K Singhal, joint MD, MCX, said "Sebi is a regulator of international repute and excellent track record. They have done tremendous ground work during the last seven months in the various areas of commodity derivatives market and have consulted all the stakeholders and we have no doubt that this merger will bring about more transparency in the commodity derivative market and will facilitate its growth."

The last FMC chairman Ramesh Abhishek said the merger has addressed the mismatch between regulatory structure and the large commodity derivatives market."FMC did not have powers to investigate intermediaries and impose penalties which is required by every regulator," he said, adding that a large number of people are affected by what happens in the commodity market.

Sebi will eventually also focus on price formulation. "In the long run, we also want that in commodities where India is a very dominant player, we should not be the 'price taker', we should be setting the market rates. So we should be 'price makers'," said Sebi chairman.