Regulator Sebi mulls ways to make commodity markets deeper and safer
To deepen commodities derivative markets, regulator Sebi is mulling allowing new products and institutional players while an integrated database is in the works for agriculture as well as non-agri products to better understand the domestic and international trends.
Through this database, Sebi intends to become a “timely input provider” to the government in commodity market-related matters as any volatility and instability in agri-commodity prices are highly sensitive in nature and can have significant impact on the economy.
While spot markets in commodities do not come under Sebi’s purview, instances of volatility emanating in underlying markets may raise questions on commodity future trading and regulation. “In this scenario, Sebi is looking to strengthen its presence in the macro milieu of the commodity markets and evolve as a timely input provider to the government,” stated the regulator’s Plan of Action for this market in 2016-17.
Sebi is also working on introduction of new products such as commodity options, index futures and index while allowing institutional participants such as banks and foreign portfolio investors (FPIs) is also under active consideration. The objectives of commodity derivatives markets are price risk management and efficient price discovery so as to enable producers, importers and exporters to hedge their risk and take sowing decision, or plan import and export.
In this regard, institutional participants are important from the perspective of providing liquidity in the market.