Capital markets regulator Sebi has proposed the concept of ‘one commodity, one exchange’ in an effort to reduce fragmented liquidity and help every stock exchange develop a set of non-fragmented liquid contracts. monopoly.
In a consultation report, the regulator said it has prepared a concept note on the development of an exchange-specific unique commodity group for trading in the commodity derivatives segment and reducing fragmentation in the commodity derivatives market.
The regulator has suggested that the concept should only apply to narrow agricultural commodities and non-agricultural commodities should not be in the sights.
Agricultural commodities are classified into three categories – sensitive, broad and narrow.
The ‘exclusive’ status of the goods will last 3-5 years from the date of Sebi clearance.
The Securities and Exchange Commission of India (Sebi) has been soliciting public comments until January 7 on the proposal.
The primary goal of developing the concept was to help any exchange develop a proprietary set of non-fragmented liquid contracts on specific commodities.
In addition, this concept will ensure that the exchange concerned develops all types of derivative contracts specific to a particular commodity and provides a comprehensive development and deepening of the derivatives market. Indian goods.
Ultimately, the concept will put India in a position to influence the global benchmark pricing of those commodities – becoming the price setter for those commodities, Sebi said on Tuesday.
“While many exchanges have the option to launch competing contracts on the same commodity which can be good for encouraging competition and providing choice for investors, an exchange launching outlining contracts on a particular commodity can have a greater impact domestically as well as internationally, which can be more efficient and cost-effective in the long run,” notes Sebi.
Regarding the exclusivity proposal process, Sebi suggested that exchanges could choose to ‘block’ a commodity with the regulator if the commodity qualifies for development as an exclusive commodity contract. , before commencing intensive research and interactive large-scale market, by obtaining a letter of consent in principle from it.
Posting a block order, exchanges will have a month to research and analyze the proposed commodity in detail and confirm the ‘block order’ by sharing the feasibility report with Sebi. The blocking will be done based on Sebi’s ‘First Out, First’ method. If the exchange does not confirm the block within a month, then the block will automatically be issued on that particular commodity.
While a commodity is ‘blocked by one exchange, it cannot be blocked by another. In addition, no more than two goods can be ‘freeze’ or ‘exclusive’ for exchange at any given time.
There should be a gap of at least a month between blocking two separate commodities on the same exchange.
The application for product approval to the regulator must be submitted within six months of the confirmation of ‘blocking’ another good, the block will automatically be released.
If unsuccessful, the exchange will not be allowed to apply exclusively to the same product for a period of at least one year.
The regulator said the ‘exclusive’ status of a commodity would last 3-5 years from the date of approval by Sebi, and that exchanges could also cease the status before this period.
The exchange had to take a call about whether they wanted to remove the exclusivity from the product only after the product became liquid for 12 months straight.
The regulator proposed that the new commodity derivatives contracts would be traded on a single stock exchange for a period of 3-5 years, during which the aforementioned stock exchange would be launching of all types of products is allowed, i.e. futures contracts, futures contracts on options and commodity options, among others.
Narinder Wadhwa, President at CPAI, said that Sebi is taking proactive steps in developing the commodity derivatives market and this is one of the initiatives after opening a wide range of qualified commodities to all. both exchanges and experiences distributed revenue. “Although we oppose the idea of blocking because it goes against the spirit of the free market, in order to develop the market we also need to try this process because exchanges have to work very hard to development contract and they need some exclusivity for a number of years, hopefully he adds, the blocking is for a period of 3-5 years as mentioned in the report.
He also said it was necessary to ensure non-agricultural products did not fall into the spotlight, narrow agricultural commodities did not have much traction in any case.
If executed well, the ‘one commodity, one exchange’ concept promises to unify the liquidity existing across multiple exchanges, by allowing a single exchange to take care of a particular commodity. possible,” said Arshad Fahoum, Product Manager, Market Pulse.
As India is one of the major producers of agricultural commodities in the world and the concept will only be applied to narrow agricultural commodities, efforts should be made to ensure that liquidity is not fragmented. and the ability to increase in volume and open interest will help India become he added.
(Except for the title, this story has not been edited by NDTV staff and is published from an aggregated feed.)
