(Oct 3): India’s markets regulator is considering easing position limits for non-agricultural commodity derivatives and changing settlement rules for some farm contracts, as it seeks to deepen trading and attract more genuine hedgers.
The Securities and Exchange Board of India is seeking to boost liquidity and market depth without weakening risk controls, chairman Tuhin Kanta Pandey told a convention in New Delhi, according to a copy of his speech on the board’s website.
The proposed changes are part of SEBI’s efforts to broaden participation in India’s fast-growing commodity derivatives market and make it more effective at managing price risks. The regulator is seeking to reduce barriers for hedgers while ensuring that a surge in trading volumes translates into better liquidity and price discovery.
SEBI is also preparing guidelines to change settlement rules for some agricultural commodity derivatives after completing consultations on the proposal. Requiring physical settlement from the outset can impede the development of some contracts, Pandey said.
“A phased approach can allow the contract to mature before physical settlement becomes mandatory,” he said.
The measures come as trading in India’s commodity derivatives market surges. Notional turnover in futures and options reached about 1,538 trillion rupees (US$16 trillion or RM65.34 trillion) in the first six months of the financial year that began April 1, already 11% higher than in the whole of the previous fiscal year, Pandey said. Bullion accounted for about 59% of notional turnover in the year ended March.
Still, rising volumes alone aren’t enough to gauge the development of the market, according to Pandey.
“Success must be measured not by turnover alone, but by how effectively these markets help manage risk,” he said.
SEBI also plans to continue discussions over goods-and-services-tax issues affecting participants that deliver or receive commodities through exchange platforms.
The regulator is separately examining concerns over the settlement-price framework for derivatives on expiry days. It also wants to deepen cash markets through wider participation, stronger securities borrowing and lending, and more efficient hedging and arbitrage.
SEBI has already widened foreign investor access to commodity indices and physically settled non-agricultural contracts. It has introduced electricity futures and weather derivatives as part of efforts to expand the range of risks that can be hedged.
Uploaded by Chng Shear Lane