SEBI has asked MCX, India’s largest commodity exchange, to introduce delivery-based settlement for mini zinc and aluminium contracts being traded on its platform for base metals with a view to bring domestic price discovery, sources close to the matter told BusinessLine . MCX recently launched a delivery-based settlement for main contracts of zinc and aluminium but did not do the same for mini contracts.

The regulator has been pressing the exchange to convert all base metal contracts from the current cash settlement system to delivery-based settlement. SEBI did not allow other exchanges to launch cash settled commodity contracts. It wants MCX to launch delivery-based settlement in all the contracts in this financial year itself. But converting mini gold and silver futures contracts to delivery based is still under discussion in SEBI, the source said. Mini contracts have a smaller lot size than the large contracts.

There is a view within the regulator that domestic price discovery can help India cut its dependence on foreign bourses for price discovery. Commodity exchanges were paying a fee to exchanges in London and the US for taking their price feeds. The entire domestic trade could move to the exchange’s platform if delivery of goods is involved in the settlement, market experts say.

The government and SEBI have been asking exchanges to implement delivery settlement, which could potentially rev-up participation from actual businessmen wanting to hedge their risk against the current practice of speculators driving the volumes.

MCX did not respond to email query.

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