Sebi favours allowing FPIs in commodities derivative mkt

Taking charge of regulating the commodities derivatives trading, Sebi Chairman UK Sinha on Monday favoured allowing foreign portfolio investors in this market. Without giving any specific timeframe, Sinha said Sebi's first priority would be to develop trust in the commodities market, after which it would focus on its development by allowing participation by banks and foreign portfolio investors (FPIs), among others, over a period of time. "Sebi will focus on how prices and benchmark rates are fixed in commodity markets and also look at the possibility of having products like options and futures," he said at an event to formalise the merger of commodities markets regulator FMC (Forward Markets Commission) with the Securities and Exchange Board of India (Sebi).

Asked specifically about the timeframe for allowing FPIs, Sinha evaded a direct answer and said the same would be announced as and when it happens. Department of Economic Affairs Secretary Shaktikanta Das, who was also present at the event, too evaded a direct answer on the timeframe and said Sebi is now the regulator for this market and all its recommendations would be considered by the government in due course. Das said the government has to be alive to the overall price situation.

"As we go by, balance needs to be found between price stability and market development. We have to have a situation where prices do not become unusually volatile. "There has to be policy certainty also. This is a challenging task and I am confident that Sebi will be able to strike a balance," he said. Commodities market has been hoping for FPIs to be allowed after FMC's merger with Sebi, but RBI recently told the markets regulator to keep any such decision on hold till a policy review is done by the government in this regard. There were expectations that the merger would pave way for FPIs to participate in the commodities derivatives market, as they are already allowed by Sebi in the capital markets segment under its ambit.

Ahead of the merger, Sebi had written to the Reserve Bank and the government in this regard, to which RBI replied that the status quo should be maintained till a policy review is undertaken by the government for allowing FPIs in commodities derivative trading. The merger was formalised at the event with Finance Minister Arun Jaitley ringing the customary stock market bell.