More study needed before allowing commodity trading in GIFT:CDAC

The Securities and Exchange Board of India-appointed Commodity Derivative Advisory Committee (CDAC) feels a detailed study is needed before approving commodity derivatives trading in the Gift City, sources told Moneycontrol.The CDAC had met on Tuesday to discuss a proposal to allow commodity derivatives trading in the Gift City, as well to discuss rules for a clearing corporation  for commodities. “SEBI should check factors like liquidity and its potential impact on the existing commodity market before allowing commodities trading in Gift City,” said a source.The BSE International Exchange in the Gift City is operational and it has sought approval for trading in non-agri commodities. “CDAC committee members raised concerns about the pricing mechanism of quanto product and claimed that it is purely dollar-rupee contract,” said the source, adding, “also the members raised a red flag on the settlement price of gold contract of Dubai Gold and Commodities exchange”.   In principle, CDAC members are keen to encourage foreign investor participation in the Gift City by offering more products to trade in.“Regulators are working to ensure that more products are offered in the Gift City,” Arjun Ram Meghwal Minister of State, Finance and Corporate Affair Ministry had told Moneycontrol in an interview last month.CDAC members worry that if all the products are offered in the Gift City, then volumes in the domestic market could be impacted. In the GIFT City, government is offering incentives like tax holiday and waiver of charges like commodity transaction tax and securities transaction tax. Along with this, exchanges will get a single product policy for stocks, commodities and currencies.Sources say that discussions have also been initiated with commodity exchanges for their assessment and views on obligations, responsibility of clearing corporation for good delivery.