SEBI Plans to Streamline Commodities Market to Drive Investor Growth

The Securities and Exchange Board of India (SEBI) is examining several aspects of the commodities market to address low participation and operational bottlenecks.  

Speaking at the 11th Convention of the Commodity Participants Association of India (CPAI) in New Delhi, SEBI chairman Tuhin Kanta Pandey said the regulator is reviewing existing rules and market practices across commodity segments. 

Working Groups to Study Derivatives 

SEBI has set up working groups to review the agri-commodity derivatives market. These groups are looking at norms related to margins, position limits, delivery and settlement mechanisms to assess whether they can be adjusted without affecting risk controls.  

Pandey said the recommendations will be taken up after consultation with stakeholders. A separate working group for non-agricultural commodity derivatives is expected to be notified soon. 

Institutional Participation Under Discussion 

The regulator is engaging with the Reserve Bank of India and the Insurance Regulatory and Development Authority of India to allow banks and insurance companies to participate in commodity derivatives.  

SEBI said institutional presence in commodity markets remains limited. It is also examining steps to improve participation in non-agricultural commodities, including allowing foreign portfolio investors in certain non-cash-settled derivative contracts. 

Reporting and Investor Protection Proposals 

SEBI plans to extend its common reporting portal, currently available to stock brokers, to commodity-only brokers. Reports suggest that this is for simplifying reporting requirements.  

The regulator is also considering a proposal to maintain a single investor protection fund for all products offered by an exchange.  

At present, exchanges maintain separate investor protection funds for commodity and equity or bond segments, with safeguards being examined for commodity-focused exchanges. 

GST-Related Delivery Issues 

Pandey said SEBI is continuing discussions with the government to address goods and services tax-related issues faced by participants who wish to take or make delivery through exchange platforms. Market participants have said GST-related costs and procedures affect delivery-based trades and liquidity in certain contracts. 

Electronic Gold Receipts Framework 

SEBI is reviewing the electronic gold receipts (EGR) framework following limited market adoption. EGRs were recognised as securities in December 2021, and the operational framework was issued in January 2022.  

The regulator is examining factors affecting liquidity and acceptance, including tax-related concerns, and has reiterated that investors should use regulated gold products. 

Read More:  SEBI Board Meeting Outcome: Overhaul of Mutual Funds to Stock Brokers Regulations! 

Conclusion 

SEBI said the reviews underway are part of efforts to address structural issues in the commodities market and improve participation across agricultural and non-agricultural segments. 

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