Sebi to finalise norms for options in commodities soon

Market regulator Securities and Exchange Board of India (Sebi) is finalising norms for allowing options in commodities, albeit cautiously.

While the decision is expected to be taken soon, experts have suggested various other measures which could be taken simultaneously to achieve the objective of increasing the hedging by farmers. These objectives were also discussed during the meeting of the regulator with stakeholders and also with the commodity market advisory committee recently.

Suggestions include allowing banks to act as aggregators. This means banks that have financed farmers against their produce shall hedge all the risk of price movements on the commodity derivative platform but they will do so aggregating all positions. Individual farmers can't manage small hedging directly, but banks can.

However more than banks, it is the state-level agriculture marketing federations that also act as market intervention agencies and deal with farmers directly. Most states have such agencies and according to sources aware of the development, a leading agri commodity exchange, the National Commodity and Derivatives Exchange, is in talks with the Maharashtra government to allow the state's marketing federation or any other body dealing with farmers to act as an aggregator on NCDEX platform to hedge. The state agri department is said to be considering this proposal.

Since the last many years, commodity exchanges have been holding discussions with state marketing federations to hedge on their platforms but these agencies are government funded and hence they need state permission for paying margins. These permissions were not coming easy due to a lack of any push from the regulator and central government.

Another important aspect for increasing farmers' participation in commodity hedging is the involvement of the Farmer Producer Organisations (FPOs) and there are about 800-1,000 such organisations. Through these FPOs or through farmers directly, NCDEX has been able to involve about 18,500 farmers to hedge on its platform. However, suspension of chana and castor seed contracts has further reduced availability of products that these farmers can hedge. The exchange is in talks with several such organisations and state agencies to increase hedging on its platform to reduce farmers' risk, said the exchange official.

Securities and Exchange Board of India ( SEBI )