Sebi to consider tighter scrutiny of commodity brokers, IPOs

Mumbai: The Securities and Exchange Board of India (Sebi) plans to enhance surveillance of commodity brokers ahead of introducing a unified licence for intermediaries. The capital market regulator’s board will consider this issue when it meets on 26 April, two people with direct knowledge of the matter said.

The increased surveillance will happen through a so-called risk-based supervision system that focuses on identifying, measuring and mitigating risk—which is already in place for equity brokers. This will be part of the overall operation framework for a unified licence for commodity and equity brokers, said the people cited.

The surveillance system for commodities will be dynamic in nature given the heterogeneity of contracts, said one of the people on condition of anonymity as he isn’t authorized to speak to reporters. For instance, a gold contract would risk alerts different from an agricultural commodity derivative such as for guar or coriander.

The unified licence is part of the government’s broader plan to integrate commodity and equity markets after it merged the Forward Markets Commission with Sebi in 2015.

“The commodities and securities derivative markets will be further integrated by integrating the participants, brokers, and operational frameworks,” Union finance minister Arun Jaitley said in his budget speech on 1 February. At its first board meet under new chairman Ajay Tyagi, Sebi would also review the monitoring framework for initial public offers (IPO) and fund raising proceeds, these people said.

The Economic Times first reported this on 13 April.

The review will include applicability of appointment of the banker who would monitor the deployment of proceeds, dissemination requirements, timelines for report and responsibility of management and monitoring agency, said the second of the two people cited earlier.

Current Sebi rules mandate a monitoring framework only for IPOs with a size of at least Rs500 crore. In 2014, Sebi had proposed to make it applicable for smaller capital market issues as well, but it wasn’t implemented due to the compliance burden it would impose on smaller companies.

Separately, the Sebi board will consider allowing systemically important non-banking financial companies (NBFCs) as a qualified institutional buyer (QIB) in IPOs. Presently, institutions such as banks and insurance companies are categorized as QIBs. Half of the shares in an IPO are set apart for them.

This move is expected to strengthen the IPO market and channelize more investments. The Sebi board will also consider commodity options for the second time. In the previous board meeting, Sebi did not clear the proposal as the finance ministry said it would have required an amendment to the Sebi Act itself and not just the Stock Exchange and Clearing Corporation (SECC) rules. The regulator had proposed amendments to SECC regulations to allow for options that have commodity futures as underlying.