A year after taking over regulation of the commodity market, SEBI envisages a ‘cautious growth’ for futures and options trading in commodities as it focuses on policies to protect the integrity of the market.

UK Sinha, Chairman, SEBI, said there has been severe criticism that the regulator was slow in fuelling the growth of this market with favourable policies, but SEBI is more focused on upholding the integrity of the market rather than being worried about the growth.

“We have allowed options trading in one each agriculture and non-agriculture commodity. That does not mean there will be a slew of new product launches to drive growth. We will follow a cautious approach for growth in this market,” he said.

The regulator plans to follow all the options norms in the security market for commodities where the delivery can be exercised only at the end of the contract (European option).

“Availability of options writer is an issue which we have to sort out. If there are not enough writers then premium would go up,” said Rajeev Agarwal, Member, SEBI.

SEBI has strengthened the surveillance system, improved risk management norms of exchanges and brought in new norms for warehouses, but more work needs to be done, he told media on the first anniversary as regulator of commodity market.

Many of the steps taken by SEBI in surveillance and risk management may not be liked by some, but it was needed to enhance investors confidence and attract hedgers’ participation, said Sinha.

The surveillance system raises 50 alerts a day and are dealt with appropriately, he said.

Sinha assured that banning of commodities from trading would become minimal once the risk and surveillance system is tightened.

SEBI has cut position limits in agriculture commodities to align them with existing liquidity and curb excessive speculation.

Curbing volatility

Daily circuit filters were also reduced in the agriculture commodities to 4 per cent from 6 per cent to reduce volatility and initial margins were raised for better risk coverage.

SEBI has already initiated talks with other regulators to allow institutions under their ambit to trade on commodity exchanges. For this to happen, Sinha said, other regulatory bodies need to be convinced that this market is safe for trading. To build this confidence, he hinted that domestic institutions, mostly mutual funds, which is regulated by SEBI, would be allowed to trade in commodities markets first.

Sinha said that the dominance of one exchange (MCX commands over 80 per cent market share of commodity futures volume) in the commodity trading space is a cause of concern and the regulator would encourage competition.

“This obviously does not mean that the growth of dominant player would be stifled to encourage competition. Our aim to encourage healthy competition with transparent policies,” he said.

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