SEBI Panel Set to Propose Easing Commodity Derivatives Rules in India
A panel set up by the Securities and Exchange Board of India (SEBI) is drafting a series of recommendations for the liberalization of the regulatory regime governing commodity derivatives in India. This panel’s final report, which is due early next year, could not only outline a completely different workings of the commodity futures markets but also change the profile of the participants significantly.
Firstly, a significant measure in this initiative would be the removal of the prohibitions on futures trading for several important agricultural commodities such as paddy, wheat and crude palm oil. The bans were implemented since 2021 as a measure to fight against speculative activities and to ensure that the prices of physical markets are not affected. However, the panel has identified that the price fluctuation in these markets has been quite stable both before and after the bans and members now feel that trading can recommence without any negative effects on consumers.
The report would further advocate for the provision of clear regulations concerning the taxation of commodity derivatives under the GST system. Unambiguous legislation regarding the GST rates applicable to these financial instruments will lessen the misunderstandings and thus broaden the market participants’ base.
Moreover, the panel is considering a proposal that would permit the access of co-location facilities for trading in commodity derivatives. Currently, only the equity markets are allowed to have their servers near the exchange data centers to ensure quicker trading. The extension of this to commodity markets is likely to entice institutional participants and, in turn, increase market depth.
Additionally, the committee may also propose that margin requirements be lowered for certain agricultural contracts which would be a positive sign for traders as the transaction costs will diminish. Alongside the measures aimed at allowing large institutional investors like banks, pension funds and insurance companies to enter the markets, the panel’s recommendations intend to increase the number of market participants and deepen the Indian commodity markets.
Should these reforms be given the green light by SEBI, the Reserve Bank of India and the central government, they would have the effect of changing the role of commodity derivatives in India. That is to say, the changes will foster deeper markets with higher trading volumes while trying to ensure price stability for necessary goods.
Read More News: Click Here