Source: ET
Context:
The Securities and Exchange Board of India (SEBI) is exploring reforms to deepen participation in India’s commodity derivatives markets, particularly in the non-agriculture segment.
India’s commodity derivatives market
India’s commodity derivatives market involves standardized financial contracts (like futures and options) whose value is derived from commodities such as gold, oil, and agricultural products, allowing producers and investors to manage price risks and speculate on market movements.
Key Highlights:
Engagement with Government
- SEBI will consult with the government to permit banks, insurance companies, and pension funds to invest in non-agricultural commodity derivatives.
- Current participation of these institutions in such markets is restricted.
Foreign Portfolio Investors (FPIs)
- SEBI is considering allowing FPIs to trade in non-cash settled, non-agricultural commodity derivative contracts.
- This move could enhance liquidity and global integration of Indian commodity markets.
Focus Areas
- The reforms target non-agriculture commodities such as metals, energy products, and other industrial commodities.
- Excludes agricultural derivatives, which are more politically and socially sensitive.
SEBI’s Initiatives
- Formation of a working group for non-agricultural commodities with a four-point agenda:
- Real-time margin collection
- Promotion of new exchange products
- Support for logistics services, including tools for critical mineral exploration
- Boosting SME participation and potentially allowing select derivatives for FPIs
- By December, commodity brokers will come under a unified reporting system to simplify compliance.
MCX Initiatives
- MCX aims to expand participation in metal contracts across:
- Commercial participants: Large and small-to-medium metal producers and consumers
- Financial participants: Broker-members, investors, mutual funds, ETFs, banks
- Banks can support the ecosystem as lenders, corporate bankers, and market participants.
