With an aim to deepen the nascent commodity market, SEBI is likely to give mutual funds the go-ahead to trade in commodity markets in a month, while the regulator is also in talks with the RBI to allow institutional investors like banks and FPIs to trade in the segment.
"Mutual funds' participation in commodities derivatives would be the first one to happen among institutional investors," Securities and Exchange Board of India (SEBI) Chairman U K Sinha today said, and hinted that the move could be implemented in a month.
Sinha, whose term as SBEI Chairman ends on March 1, was speaking to reporters on the sidelines of the regulator's international conference on commodity derivatives.
On allowing participation of banks, alternative investment funds and foreign portfolio investors (FPIs) in commodities, he said SEBI is in active consultation with the Reserve Bank over the issue.
"Our argument with RBI has been, in any case bank's have huge exposure to commodities through the lending programme. We have been asking them to disclose that. Let a beginning be made by the corporates in disclosing that and then you yourself discover there is a need to allow them to hedge also," Sinha said.
"We are at an early stage of dialogue and part of the reason is how comfortable RBI is about the financial health of the bank, so they will also have this as a concern when they take that call," he added.
SEBI, which started regulating commodity markets after the merger of Forward Markets Commission (FMC) with the regulator in September 2015, is working towards developing the commodities market by bringing in more products participants like FPIs, insurance and mutual funds.
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Addressing the conference, Sinha said that the nation has failed to modernise commodities market system and to take advantage of developments in this regard in rest of the world.
He also said the system has not been able to meet the basic requirement of fair price to producers and consumers and give some amount of comfort that market is being well managed.
"Even when India is among the top five producers for many commodities, it has not been able to influence global price setting..Our influence has been marginal," Sinha said.
He also noted that the country's spot market is very fragmented and there was an urgent need to have clear norms on this segment in the country.
While noting that various improvements have been made in commodities since Sebi took over regulating this market, Sinha expressed concern over low participation from producers and hedgers and said the stage has come to allow new participants like mutual funds, insurance companies and FPIs as well as new products into the commodity trading space.
Sinha noted that Sebi initially was more focused on ensuring better regulation and smooth functioning of commodities trading.
He also said significant reforms have been undertaken by the government to ensure that an effective price discovery mechanism is in place.
"An important reform in this direction is that when government announced setting up of electronic national agriculture market (ENAM) which would connect 500 local markets and the first part of it -- computerised reporting of prices has been started in 200 markets and this will ensure that producers and consumers get the benefits of price discovery," Sinha added.
