Sebi, which took over the regulation of commodities a year ago, today said it is treading cautiously to align the commodity derivatives segment on the lines of securities market.
While Sebi is keen to develop the commodities market by bringing in more products and participants like FPIs, insurance and mutual funds, it said it will continue to take a cautious approach towards its development.
"Sebi has certain reputation to guard and duty to perform as given by to it by the Parliament and our first priority is to ensure active surveillance and to strengthen our risk management," Sebi chairman U K Sinha told reporters here.
"While we will be going for development of commodities market we will be going for cautious development...Caution we are exercising is to align the commodity derivative system on the same line as system for securities," he added.
Noting that Sebi's surveillance system has been able to align itself with the challenges of dealing with commodity derivatives, Sinha said, "Now we are exhibiting reasonable confidence that we can handle this (commodities markets)".
The regulator has successfully integrated the trade data from their commodities trading with its surveillance system.
The surveillance system is currently generating about 50 alerts a day related to commodity trading, while action has also been taken against various entities for violations.
Sebi took over the regulation of the commodity derivatives market on September 28, 2015 as a result of merger of Forward Markets Commission (FMC) with it.
Sinha said while Sebi has initiated talks with other sectoral regulators in regard to bringing in more market participants for trades in commodities, the point remained whether there enough confidence and trust in this markets had been generated which is considered to be highly speculative and prone to manipulation.
"Once we are confident that we are in the right path we would be happy to bring in new products and participants and will also take up the same with other regulators," Sinha noted adding that some confidence has been generated following guidelines on risk management and warehousing norms.
Going forward, Sebi plans to introduce more and more measures to promote hedging.
"We are focusing on promoting hedging... We are working towards how more and more hedgers can be roped in for both agriculture and non-agriculture products," Sebi whole time member Rajeev Agarwal said.
Significantly, Agarwal also said that algorithm trading
norms, changes to which are currently under consideration of Sebi and would be applied to securities market, would also be subsequently extended to commodities segment as well.
On competition in commodity markets among the commexes, Sinha said, "both the government and Sebi believed that there has to be competition in the market and lack of it is a risky thing".
"The intention is to create enough transparent mechanism so that others can also grow," he noted adding that the Sebi's efforts are to provide a fair and vibrant market to current and potential players.
However, Sebi chief said that it would take "some more time" for the regulator to allow stock exchange to operate and launch commodity trading.
Talking on price discovery in the commodity markets, Sinha said the existing price polling mechanism is not scientific and that the regulator is "trying to take measures to improve it".
"The advisory Committee headed by Niti Ayog member Ramesh Chand is very actively looking into the area," Sinha added.
The committee is also looking into issues like improving hedgers participation, improving liquidity of the contracts, having objective criteria for introducing new commodities to futures trading, and bringing new participants, institutional as well as non-institutional, to the commodities market.
Agarwal also said that ensuring good delivery, which is so necessary for winning the confidence of the participants in the Commodities markets, has always been a challenge.
"Considering this, Sebi in the beginning itself made good delivery a legal responsibility of the exchanges which used to be a moral responsibility earlier," Agarwal said.
Sebi had recently issued detailed guidelines to improve the standard of warehouses and develop the warehousing sector elaborate guidelines for "minimum standards" and "governance".
The regulator has also set up a grievance redressal system of the commodities markets which has been brought almost at par with the securities market.
Sinha noted that the regulator, which had no experience in dealing with commodities, had to train over 200 of its officers on commodity derivatives.
It has also collaborated with US Regulator of Commodities for the purpose.
