Sebi directs commexes to bring transparency in price polling

The Securities and Exchange Board of India (Sebi) has tightened the loopholes in the existing spot price polling systems of agri commodities to bring transparency into the system and fix accountability on the exchange or the panellist, effective September 29.

The price polling assumes significance, as the same is used for settlement of contract on the expiry of the respective commodities.

The regulator on Friday has asked exchanges to lay down a documented policy for the spot price polling mechanism and display it on its website along with the names and other details of the panellist. Most importantly, the regulator has asked exchanges to disclose criteria for selection of these polling participants. “The commodity derivatives exchanges, or commexes, have been using a spot price polling mechanism to arrive at the prevailing spot prices. Transparent discovery of spot prices is a critical factor in smooth running of futures market, as the same are used as reference prices for settlement of contracts traded on the exchange platform. To arrive at the prevailing spot prices, the exchanges are polling the spot prices from various spot price polling participants. Some exchanges undertake this activity themselves whereas some have outsourced this work to an external agency,” a Sebi circular said.

The exchange, meanwhile, at its liberty may assign the code for polling participants of a particular contract and reveal his location and price for the day. The exchange has been asked to display the polled price for three years, even after expiry of the contract.

Currently, some commexes are outsourcing polled price through an external agency, while others do it on their own. Sebi has asked exchanges to display entire methodology adopted for polling agri commodity prices on its website. Sebi has also directed exchanges to review, on a monthly basis, the prices polled by the participants to identify participants habitually polling unrealistic prices. These participants could be put under watch and subsequently removed from the panel, if such instances reoccur despite appropriate communications.

Exchanges are required to provide a separate feedback window for receiving complaints in this regard. The exchanges shall address such complaints in a time-bound manner. Further, the exchanges shall keep the audit trail of all such complaints received and steps taken for redressal, the circular said.