 "Sebi panel to mull reforms in commodity market")
An experts panel of the Securities and Exchange Board of India (Sebi) will meet on Monday to mull introduction of new products for the commodity derivatives market.
The commodity advisory committee will also discuss a price pooling mechanism for the spot market.
At present, prices are collated from a number of physical market participants at various centres. The final settlement price is part of the contract specification of the commodity.
“The uniform pricing can only ensure the fair spot price. The new mechanism would resolve the issue of agri commodities market space, which is poorly managed as traders quote different prices,” said a Sebi source who is familiar with the meeting agenda.
Adding: “Transparency is lacking in the current system, as there are participants with vested interest. For any derivative contract, it is necessary to have a linkage between the derivative price and underlying spot prices.”
The panel is also likely to give finishing touches to a proposal for introduction of new commodity derivatives products on the exchanges, especially options and index futures, to deepen and improve the market’s liquidity. Presently, only futures contracts are allowed in the commodity derivatives space.The introduction of such new derivatives can make the market more attractive and efficient, feels an expert.
The committee will also discuss reforms suggested for the utilisation and impact of commodity derivatives, and ways to strengthen hedging activity in this market. “A more pro-active role is required by all classes to expand hedging in India. Deficiency of awareness in both rural and urban India, coupled with almost negligible participation by corporates are among the key reason why hedging activities are yet to gain momentum, especially in agri commodities,” said Ajay Kedia, managing director of Kedia Commodities.
Weather derivatives are one product idea the Sebi panel will deliberate on. This is a financial instrument for managing this risk in the agricultural sector.
“Some conclusion will be likely at the meeting,” said a source. The committee will also look into the proposal of minimum support prices for all commodities.
This will be the second meeting of Sebi’s commodities panel after the Forward Markets Commission was merged with market regulator in September 2015.
ON THE TABLE
-
Advisory sub-committee meeting on Monday
-
The panel likely to introduce a price pooling mechanism for the spot market
-
To discuss the utilisation and impact of commodity derivative
