Liquidity & maturity of commodity markets to increase with new derivative products

India Infoline News Service | Mumbai | March 02, 2016 11:40 IST

SEBI is working on the operational details of these products and it is expected that some basic products like derivatives for the core index, will be launched in few months time.

After SEBI took over the regulatory responsibility of the commodities markets, it was felt that it would launch new products to improve the liquidity and depth of commodities market. Now the government has made it clear that it will give permission for launch of such products. Commodity traders expect that initially, most of the contracts would be similar to those available in equity markets.
 
SEBI is working on the operational details of these products and it is expected that some basic products like derivatives for the core index, will be launched in few months time.
 
Many people have accused SEBI of not being proactive with the launch of derivatives. But SEBI seems to have taken the cautious route and was busy strengthening the regulatory framework for the markets first. Now with that in place, it’s working to launch newer products that will help improve the liquidity of the markets. Currently only ‘futures’ are available in the derivative category. Going forward, products related to options, index-related derivatives and even weather indices will be made available. There are also chances that government might look into the long-standing demand of allowing foreign investors and financial institutions like banks into the commodities market.
 
The budget also made an announcement that an online e-market would be created to implement Unified Agriculture Marketing Scheme (UAMS). It will help improve the transparency and efficiency in agricultural markets and also, empower the small farmers by connecting them remotely to markets. But as far as reduction of commodity transaction tax (CTT) is concerned, there is still no signal from the government that it will be reduced. Though commodity traders are demanding complete removal of CTT, even a small reduction would have also help sent the signal that government is ready to listen to the demand of market participants.
 
There is still some time before the new derivatives are launched. But the expectation is that SEBI will help streamline the commodities space in the same manner as it has done in the equity markets.

 

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