SEBI may not give green signal to petrol and diesel future contracts

The Security and Exchange Board of India (SEBI) is unlikely to approve the Multi Commodity Exchange (MCX) and Indian Commodity Exchange’s (ICEX) applications for launching futures contracts in petrol and diesel, sources aware of the development told Moneycontrol.

This is because both petrol and diesel are politically sensitive fuels, given their ability to influence retail and wholesale inflation, sources said.

In December last year, both the exchanges had filed applications with SEBI.

The capital and commodities market regulator had written to the petroleum ministry seeking an in-principle approval for the contracts, which the ministry had given in May.

Technically, nothing stops SEBI from green flagging futures trading in petrol and diesel as both fuels are on the approved list of 90 commodities.

“SEBI feels the move [to approve the products] could become controversial even if fuel prices were to rise because of other factors,” a source said.

Already, petrol and diesel prices are close to multi-year highs because of the recent spurt in global crude oil prices.

An official from one of the exchanges which had applied for the contracts said, “As of now SEBI has neither approved our application, nor [has it] rejected it.”

There has been a long standing debate on whether or not futures trading in a particular commodity influences the prices in the spot market. In the past, the government has banned futures trading in quite a few commodities following an outcry over the steep rise in prices of those commodities in the physical market.

There is another reason for SEBI’s reluctance to approve futures trading in petrol and diesel.

“In petrol and diesel, there is little scope for physical delivery because of the hazard in storing them,” said a source.

“SEBI is pushing for physical delivery to curb manipulation in commodity market. The new exchanges which will start operations in October this year will get approval only for delivery-based contracts. Exchanges on which many commodities are cash settled will be given a deadline to shift to delivery-based settlement,” the source added.