Sebi permission for mutual funds, PMS in commodity derivatives soon

With the concept of a universal exchange set to become a reality, the Securities and a Exchange Board of India (Sebi) has finalised norms for allowing mutual funds and portfolio management services to participate in commodity derivatives. The market regulator will be announcing these norms shortly.

Sebi had issued a discussion paper on the subject in first week of December last year.

After that, the regulator had cleared and set a time line for introducing the universal exchange, under which equity and commodity exchanges can enter each other's arena. Prior to that Sebi is keen to expand the product basket and introduce various participants in the commodity derivatives market.

Some indications in this connection were given by Finance Minister Arun Jaitely in the Union Budget last week, when he said, “For better price realisation, farmers need to make decisions based on prices likely to be available after harvest. The Government will create an institutional mechanism, with participation of all concerned Ministries, to develop appropriate policies and practices for price and demand forecast, use of futures and options market, expansion of warehouse depository system and to take decisions about specific exports and imports related measures.”

Exchange industry officials are enthused with this announcement because while the FM mentioned this in connection with agri-produce, the infrastructure he has proposed will be equally useful for all non-agri contracts in which where delivery is possible.

These include gold, silver and other delivery-based metal contracts that MCX and NCDEX have proposed to Sebi.

The enthusiasm also stems from the FM's statement, which says, “Commodity futures and options are being used as part of institutional mechanism for optimal realisation of prices for farmers.”

One industry official said, “While the emphasis (of the FM's statement) was on agri commodities, we feel Sebi will expand its scope and allow futures and options in other commodities as well. We don’t expect the regulator to differentiate between agri and non-agri and feekl that all commodity exchanges may witness action in terms of approvals.”

The FM’s statement clearly indicates that government is looking at commodity derivatives market as an important platform.

Sources in the collateral management segment said that the government is also pushing for expanding the WDRA Repository framework. There are two repositories that are already functioning and one has started issuing electronic warehouse receipts, which is negotiable.

So far, the initial phase of repository is focused on farm produce, but it could be expanded non-agri, once a reasonably decent base in farm has been built, the sources say. The same network will be useful when the gold spot exchange becomes reality.

SEBI is expected to come up with norms for non-agri commodities (vaults and warehouses), which will be a stepping stone towards WDRA Repository including non-agri.

The FM’s announcement to rationalise CTT on exercise of options to 0.0001 per cent from the present 0.125 per cent, is also seen as a signal to adding more commodities to options basket.