Sebi favours allowing FPIs in commodities derivative mkt

The Securities and Exchange Board of India (Sebi), which on Monday officially assumed a wider role of regulating commodities futures market, plans to liberalise commodities trading by allowing access to foreign portfolio investors (FPIs) and banks, albeit in a gradual manner. “We will look at allowing banks and FPIs to participate in the market but that will take time”, Sinha said.

“Market participants and regulators have to brace themselves to face the challenges thrown by global developments and integration of markets“, he said.

In the earliest ever blend of 2 lawmakers, over 60-year-old Forward Markets Commission (FMC) is going to combine on Monday by having current market regulator Sebi to produce a specific regulatory human body.

The merger was formalised at the event with Finance Minister Arun Jaitley ringing the customary stock market bell.

“Markets thrive where there is confidence and integrity”.

“This merger indicates how the size of our markets have grown and how India has now become more aspirational”, Jaitley said at the function at the Trident hotel here.

The FMC, which was set up in 1953, was formally merged with Sebi today following which the regulation of commodities derivatives is now under Sebi’s jurisdiction. Now that FMC has been merged with SEBI, Sinha said a “framework” for allowing banks and FIIs in commodity markets will be put in place in a few months. Named “A 100 small steps”, the Raghuram Rajan Committee report on Financial Sector Reforms unveiled in 2009 recommended that SEBI should be entrusted with the responsibility of supervising organised trading of equities, corporate debt, government bonds, currencies, commodities, and other kinds of products.

Sinha said, “In order to ensure that nothing is disrupted, there is no discontinuity…We are giving some timeframe so that they (the players) can adjust with the new regulations“.

Das said that the government is focusing on ease of doing business.

He also said that the regulator must ensure that manipulative activities are curbed in this market.

“Our nation is no longer satisfied with 6-8 percent band of growth”.

“Both commodity derivatives and equity derivatives have similar economic purposes, hedging, efficient price discovery and risk management and have a close resemblance in so far as trade practices and mechanisms are concerned”, he said. One, it reduced competition; two, it resulted in the loss of economies of scope and scale; and three, it led to a corrosive political economy.