Mumbai, April 23, 2018

Govt agreeable in principle to this suggestion, though Sebi itself is not

Spot commodity exchanges for gold, metals and even energy products like natural gas could see the light of day under the Securities and Exchange Board of India (Sebi) as the regulator.

This has been recommended by a committee on the subject. It was appointed by the finance ministry under NITI Aayog member Ramesh Chand.  The panel also suggests the “existing institutional infrastructure of commodity exchanges may also be utilised, to the extent possible, to create a spot exchange for commodities”.  Regulation for spot commodity exchanges has been a contentious issue for some years. Especially after the National Spot Exchange fiasco, where a Rs 56-billion fraud was revealed in 2013.

Since 2016, the BSE exchange and Indian Bullion and Jewellers Association have proposed an online nationwide spot gold exchange. Later, commodity derivatives exchanges proposed spot exchanges for gold, metals and energy products. The Chand committee was appointed to recommend on steps for “integration of commodity spot and derivatives markets”. Its report was given in February. The department of economic affairs has accepted it in principle. However, implementation depends upon various other ministries and departments. The committee discussed the agricultural and non-agri segments.

Two years earlier, too, a standing group under the ministry of finance on comprehensive gold policy had proposed that Sebi regulate gold spot exchanges. Now, such exchanges are planned for many commodities.

Sebi is, however, reluctant to regulate spot commodity exchanges. It has already responded to the committee report, saying commodity spot markets do not fall under the ambit of its regulatory purview. And, that it does not have adequate skill sets and resources to deal with the spot market of these commodities.   Instead, suggests Sebi, regulation of commodity spot exchanges should be vested in a separate sectoral regulator. Ramesh Chand, the panel chairman, told Business Standard, “Sebi is best suited to regulate a pan-India electronic spot commodity exchanges, as this involves attendant risk management, clearing and settlement, etc.” Adding, as his report did: “The existing institutional infrastructure of commodity exchanges may also be utilised, to the extent possible, to create a spot exchange for commodities.”

In the past, Sebi had also opposed bringing commodity derivatives regulations under its ambit but it later was made the regulator for this and is expanding the market, albeit cautiously. At present, e-auction platforms are present in the commodity space such as NCDEX eMarkets for agricultural commodities and M-junction for base metals (mainly steel), both of which are active. Chand also says there is a need to focus on the National Agriculture Market (eNAM), an electronic one, but this would be kept out of Sebi’s purview.

The report also notes, “The Model Agricultural Produce and Livestock Marketing (Promotion & Facilitation) Act, 2017, has encouraged the setting up of electronic trading platforms for notified agricultural commodities, including livestock. There is, thus, a strong case for development of integrated electronic spot markets.”

[The Business Standard]