‘One exchange, one commodity concept may kill off competition’

Suresh P Iyengar Mumbai | Updated on March 17, 2020 Published on March 17, 2020

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Commodity market participants have raised concern over the Sebi plan to moot ‘one exchange, one commodity’ concept in line with the international trend.

In an internal concept note circulated with commodity exchanges and market participants, Sebi has suggested the idea of developing a unique set of commodities on which derivative products can be launched for trading at a single exchange.

It would help exchanges focus on product development instead of battling competition on same products from other exchanges. Moreover, liquidity in such contracts will not get fragmented among various exchanges at the early stage of contract development, it said.

However, Narinder Wadhwa, President, Commodity Participants Association of India, said the market regulator should encourage competition among exchanges by insisting on innovation in contract specification if a competing exchange comes for approval of same commodity traded on other exchange.

Competition always brings down cost of trading and can attract more hedgers to the trading platform, he said and added that the association has submitted a detailed presentation with Sebi. Though contracts of a particular commodity is traded on multiple exchanges, Sebi said the liquidity is concentrated on specific exchange.

It appears that for practical purposes, liquidity is concentrated on specific stock exchange for specific commodity. Sebi feels a single exchange launching contract on specific commodity may have a bigger impact locally and internationally. One commodity-one exchange may be more efficient and less costly to run, Sebi said.

In order to address monopoly issue, each commodity exchange can select one or two commodities from the notified list of 90 and will have the first right to launch derivatives in that particular commodities.

It has to ensure that the selected commodities are not already traded on other exchanges. Exchanges have to conduct thorough research on the commodity and submit a detailed report in six months.

To attract investors, exchanges will be allowed to launch liquidity enhancement scheme and follow liberal open position limits. Exchanges will be allowed 3 to 5 years to bring liquidity in that product, failing which the product will be allocated to other exchange, said Sebi.

Wadhwa expects Sebi to take a call on the new proposal sometime in April.

Published on March 17, 2020
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