Commodity Exchanges (Commexes) may be allowed to provide trading facility for currency derivatives after the merger of the Forward Markets Commission (FMC) with the Securities and Exchange Board of India (SEBI).
“Post merger, Commexes can start trading in currency derivative or various other products currently available only on stock exchanges.
But this will be possible only when they fulfil all the criteria and obtain the required approval for starting any new facility. Besides, they should also have the required infrastructure such as risk surveillance and clearing system in place,” a senior Finance Ministry official told BusinessLine .
At present, Commexes are regulated by the FMC while stock exchanges and mutual funds are regulated by the SEBI. Commexes provide trading facility in commodity derivatives, while stock exchanges facilitate spot and future trading of shares and currency derivatives.
Currency derivatives are like any other derivative products that have no independent value. Instead, their value is entirely ‘derived’ from the value of the underlying asset, in this case, the currency. Two forms of derivative products are available – futures and options. Futures trading is available in four currencies – dollar, euro, pound and yen while option is available only in dollar.
The basic difference between futures and options lies in the obligations. If a futures contract gives the buyer or seller obligation to buy or sell, then an option contract gives the buyer or seller the right, but not obligation, to buy or sell.
The official said the provision related with SEBI-FMC merger in the Finance Bill will help Commexes to be ‘almost’ at par with the stock exchanges.
At present, there are six national exchanges – Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), National Multi Commodity Exchange, (NMCE), Indian Commodity Exchange (ICEX), ACE Derivatives and Commodity Exchange (ACE) and Universal Commodity Exchange Ltd (UCX).Regional exchanges
Besides, there are 11 commodity specific exchanges also known as Regional Exchanges. These are called recognised associations.
Now, the provision in the Finance Bill says that recognised associations will be deemed to be recognised stock exchanges under the Securities Contracts (Regulation) Act, 1956.
Here, SEBI may provide such deemed exchanges adequate time to comply with the Securities Contracts Act and any regulations, rules, guidelines or like instruments made under the said Act.
The official said that this will help Commexes to start trading in products currently available on stock exchanges.
Currently, National Stock Exchange (NSE) is one of the promoters of the NCDEX while MCX has stake in MCX Stock Exchange (MCX SX). Both NSE and MCX SX provide currency derivative trading.