The high-level SEBI advisory committee headed by Ramesh Chand, Member, NITI Aayog, has decided to revamp the price pooling mechanism of commodity exchanges and evolve a scientific method to arrive at a price to settle future contracts.

The decision was taken at the first meeting of the committee held here on Friday with participation of representatives from SEBI, three commodity exchange officials, MMTC, WDRA, Nabard, Agricultural and Processed Food Products Export Development Authority, Commission for Agricultural Costs & Prices, besides members from IIM-Bengaluru and IIM-Ahmedabad.

While the agri-commodities traded on the futures platform are of specific quality, the commodities available in spot markets are heterogeneous and are subject to seasonality. Thus, pooling these prices from the spot market to settle futures contract is a misnomer, felt the members.

A sub-committee is being formed to study the issue and suggest a solution after seeking feedback from the mandi traders and market participants, sources said.

Poor correlation Many researches done on the price pooling mechanism have indicated poor correlation between spot and future prices of commodities. Recently, NCDEX has to suspend trading in castorseed contract as the price on the futures platform was holding strong even while it was falling steadily in the spot market as a few traders were hoarding stocks in the exchange to manipulate prices. The development led SEBI to ban four members and 12 traders from dealing with online commodity markets.

On the possibility of allowing new products, it was emphasised that any product that is being introduced should help farmers in price discovery and should not be another investment option for traders and investors.

The committee also felt that it is not the right time to allow banks, mutual fund and financial institutions to invest in the market. Rather, it was decided to deepen the market by encouraging corporate hedgers by building confidence in the market.

Warehouse issues The warehouse issues including guarantee on availability, quantity and quality of goods, besides the process of assaying was also discussed. The long pending issue of delisting illiquid contracts and review of trading in narrow commodities was also flagged off. The committee also discussed measures to increase market participation which has been dragging for last few months due to sharp falling commodity prices, sources said.

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