What's Happening?
The Securities and Exchange Board of India (SEBI) is set to establish a working group to review the non-agricultural commodity derivatives segment. This initiative, announced by SEBI Chairman Tuhin Kanta
Pandey, aims to enhance institutional participation in the market, thereby increasing liquidity and making it more attractive for hedging purposes. The announcement was made during the 11th International Convention of the Commodity and Capital Participants Association of India. SEBI is collaborating with the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDAI) to facilitate the participation of banks and insurance companies in the commodity derivatives market. The working group will be notified soon, and its recommendations are expected to help SEBI take necessary developmental measures. Additionally, SEBI is addressing taxation-related hurdles, particularly those related to the Goods and Services Tax (GST), to spur the development of commodity markets.
Why It's Important?
The formation of a working group to review non-agricultural derivatives is significant as it could lead to increased liquidity and participation in the commodity derivatives market. This move is expected to attract more institutional investors, which can enhance market stability and efficiency. By addressing GST-related challenges, SEBI aims to remove barriers that currently hinder market participants, potentially leading to a more robust and competitive market environment. The initiative also underscores SEBI's commitment to developing a comprehensive regulatory framework that supports both agricultural and non-agricultural segments, including the gold market. This could position India as a global hub for commodity trading and price discovery, benefiting investors and the broader economy.
What's Next?
SEBI will soon notify the formation of the working group, which will begin its review of the non-agricultural commodity derivatives segment. The group is expected to consult with various stakeholders to optimize the regulatory framework governing margins, position limits, and delivery and settlement mechanisms. SEBI will continue its engagement with the government to resolve GST issues, working closely with the GST Council Secretariat and the GST Council. The outcomes of these efforts could lead to significant changes in the regulatory landscape, potentially attracting more participants to the market and enhancing its overall functionality.
