The Securities and Exchange Board of India (Sebi) is likely to permit securities brokers to trade in commodities derivatives within a fortnight.
A Sebi committee under the chairmanship of K R Ramamoorthy, former chairman and managing director of Corporation Bank, is expected to submit its recommendations in this regard to the regulator shortly.
The committee, which has had two meetings till now, is looking into the issues of regulation of stockbrokers' trading in commodities futures markets, because currently commodities trading is regulated by the Forward Markets Commission.
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The committee is working out the modalities of such permission and is contemplating whether to suggest amendment to the Securities Contracts (Regulation) Act, 1956, and the rules framed under it, or draft a new law. Four approvals have already been given under the Act.
The committee is of the view that permission will be subject to separate net worth criteria. It will also be subject to separate margining system.
The committee members include representatives from the Forward Markets Commission, the food ministry and the finance ministry.
The development is significant considering the fact that the Forward Markets Commission is working towards setting up the National Commodities Exchange.
The commodities trade regulator has already shortlisted candidates for setting up such an exchange, including the National Stock Exchange (NSE), an ICICI Bank-led consortium, and the software company Financial Technologies Ltd.
India being predominantly an agro-based economy, the organised futures market in the commodities sector is now viewed seriously and the authorities believe that a robust secondary market can be achieved through a basket of trading products available under single window, besides financial instruments.
Moreover, bullion trade is most vibrant in the country because the commodity offers huge trading potential.
Keeping in line with the Budget announcement, the Reserve Bank of India (RBI) has already granted permission in this regard.
Recently, the Forward Markets Commission has also cleared futures trading in 81 commodities under the restricted list.
The regulator is of the view that the evolution of markets in commodities and financial assets is a worldwide long-term historical process.
In this process, the emergence of futures has been recognised in economic literature as a development of considerable significance.
From "forward" trading in commodities emerged commodities "futures". The emergence of financial futures is a more recent phenomenon and it represents an extension of the idea of organised futures markets.