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Wary of illiquidity, Sebi says no to any new commex futures

As the NSEL scam continues to rattle investors in the commodities market, regulator Sebi on Thursday ruled out allowing trading in any new commodity futures unless assured of sufficient liquidity.

"Sebi has been very careful in allowing trading in new commodities. We want to do that but we will be doing it very carefully. Unless we are assured that there's enough liquidity likely in some commodities, we will not consider that," chairman U K Sinha said here.

The decision comes almost three years after the Rs 5,600 crore scandal broke out at Financial Technologies-run National Spot Exchange (NSEL) in July 2013, which dealt a blow to the then thriving commodities markets. The case is still pending with meagre recoveries and repayments to over 11,000 investors happening in bits and pieces.

Sebi took over the regulation of the commodities market in September 2015 after the Forward Markets Commission, which had the mandate to regulate the commodities trading including futures, was merged with the stock market regulator.

The NSEL scam was one of the reasons that led to the merger. The government allowed futures trading in commodities only a decade ago but the market could not gain dept due to the absence of large institutional players due to government ban on their participation. The Sebi chief also said they are continuously reviewing the risk management framework in the commodities segment and it will take a few more months to bring in a mechanism to the level of securities market.

"Price discovery is very complex. For example, the physical market is controlled by the states and there are many obstacles and measures under the Essential Commodities Act.. I am not saying it is good or bad but these are difficulties... and what is the actual stock, what is actual crop output, such information is not available to us well in time," Sinha said on the sidelines of Risk Summit organised by Thomson Reuters here. 
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