Tarun SharmaMoneycontrol News
The Securities and Exchange Board of India (SEBI) is in 'informal' talks with the Reserve Bank of India to review norms on hedging in commodity markets, sources told moneycontrol.
The capital and commodity markets regulator's latest initiative in aimed at encouraging listed firms in India to hedge their commodity risks on the local commodity exchanges instead of international markets.
“The SEBI has informally initiated a dialogue with the RBI for hedging domestically,” a source in the know told Moneycontrol.
SEBI's initiative follows an unsuccessful attempt by the now defunct Forward Markets Commission (FMC), which under its Chairman Ramesh Abhishek, had kicked off discussions with RBI. FMC, now merged with SEBI, had also increased the trading timing of commodities which were affected by overseas pricing, added the source.
Hedging is a mechanism to cover future costs or realisation price in advance to minimise risks.
Crude oil, soya bean and palm oil are the three commodities which have been hedged overseas heavily. In these categories large corporate houses who are listed, hedge their positions overseas.
The source further added that the RBI, at the prodding of market regulator, may set a limit for hedging in overseas commodity markets by listed Indian companies.
Currently, corporate entities do not find it attractive enough to hedge commodity risks in the domestic market. Reasons vary from volatility of the domestic market and a lack of faith in the set-up, especially agri commodities, says the source. “Since prices go up or down drastically a trading ban can be imposed on commodities which may hamper profitability of companies,” the source said.
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