India's market regulator has expressed concerns over the high cost of trading in the commodity futures market and urged all stakeholders to find ways to bring the costs down so as to attract more investors.
The Securities and Exchange Board of India (Sebi) recently held discussions with some key stakeholders of commodities markets to assess the factors keeping hedgers away.
Most of the market players expressed concern over the high incidental costs, including those related to delivery, said SK Mohanty, whole-time member of Sebi.
The exchanges and the supporting infrastructure providers need to work on the issue, he said.
Mohanty stressed the need for the exchanges to promote awareness of hedging in commodities future and remove the misconception that there are quality and quantity issues involved in commodities delivered via the exchange platform.
'Most transparent' platform
The stakeholders need to understand that this platform is most transparent, Mohanty said at the 'India Commodity Day 2018' organised by Multi Commodity Exchange (MCX).
A significant step that Sebi has undertaken is to talk with the key government agencies involved in managing the minimum support price programmes to enter the commodities future market in a big way.
Sebi is also assessing the possibility of tweaking the regulations so that options contracts will devolve with the delivery of a particular commodity unlike the present practice of it devolving in the futures market.
The regulator was planning to widen the market by allowing new derivative products, Mohanty said. "We want to launch new products. Index derivative is one of them. We are in an advanced stage of examining them and we are also open to other derivatives like weather and freight derivatives."
Increasing depth
Sebi plans to make delivery compulsory in base metals and expects the ecosystem such as warehousing, assaying and logistics systems to evolve, he added. It will also allow portfolio management service providers and mutual funds to take part in commodity exchanges to further increase the market depth.
Sebi regulates the commodities trading in the six national commodities exchanges – the MCX, National Commodity and Derivatives Exchange, known by the acronym NCDEX, National Multi-Commodity Exchange, or NMCE, Indian Commodity Exchange, or ICEX, the ACE Derivatives exchange, or ACE, and the Universal Commodity Exchange, or UCX.
