Capital markets regulator Securities and Exchange Board of India (SEBI) on Tuesday proposed a 'one commodity one exchange' policy in a bid to reduce fragmentation of liquidity and help every stock exchange develop an exclusive set of unfragmented liquid contracts.
In a consultation paper, the regulator said it has prepared a concept note on developing exchange specific unique set of commodities for trading in the commodity derivatives segment and reducing fragmentation in the commodity derivatives markets.
The regulator has proposed that the concept should only be applicable to narrow agri-commodities. The agricultural commodities have been classified into three categories -- sensitive, broad and narrow. The 'exclusivity' status of a commodity will last around of 3-5 years from the date of SEBI's approval. The exchange can discontinue the exclusivity status before this period too, SEBI said. The exchange has to take a call on whether they want to remove the exclusivity from the product only after it becomes continuously liquid for 12 months.
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SEBI has sought comments from public till January 7 on the proposal. The main objectives of developing the concept is to help every exchange develop an exclusive set of un-fragmented liquid contracts on specific commodities. In addition, the concept will ensure that the concerned exchange develops all kinds of derivative contracts on a specific commodity exclusively and bring about comprehensive development and deepening of the Indian commodity derivatives markets.
The concept will eventually help India to be in a position so as to be able to influence the global benchmark pricing of such commodities, SEBI said. "Even though multiple exchanges having the option of launching competing contracts on the same commodity may be good for encouraging competition and providing choice to investors, a single exchange launching contracts on a specific commodity may have a bigger impact locally as well as internationally. This may be more efficient and low cost in the long run," SEBI noted.
The regulator proposed that derivative contracts on new commodities would be traded only on a single stock exchange for a period of 3-5 years during which the exchange would be allowed to launch all kind of permissible products -- futures, futures on options and options on goods, among others. It may not be appropriate to segregate non-agri commodities into 'narrow' and 'broad' for the purpose of adopting the 'One Commodity One Exchange' policy, as in the case of agri commodities, based on annual physical market size, SEBI said.
The regulator has suggested that the 'one commodity one exchange' should not be allowed in those non-agricultural commodities where India is not a major producer.
(Edited by : Vijay Anand)
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