In budget 2015, Finance Minister announced the merger of FMC with SEBI. This means that commodity exchanges which facilitated commodity futures will now be regulated by SEBI which are already governing Equities and Currency derivatives. Though it was expected after the decision last year, when FMC was moved under finance ministry (earlier it was under Department of consumer affairs, Ministry of food)
I remember the day, when the Gold contract was formally inaugurated in NMCE way back in 2003 at Vigyan Bhawan. Subsequently, NCDEX and MCX came into the picture and commodities trading turnover grown by leaps and bounds. The 1 KG Gold contract in MCX and Guar Contract in NCDEX took the commodities turnover into next level. Commodities emerged as an asset class however flow of speculative capital in sensitive commodities led to rise in inflation.
Now a days, commodities exchanges have large number of member brokers and various contracts which are traded from 10AM in the morning to 11.55 in the night. Though volumes in these exchanges have seen a dip in last one year may be due to NSEL issue, the potential can never be underestimated. Generally, derivatives contracts are more liquid and better placed in terms of price discovery.
With new regulator, the expectations are to make market a better place especially for real traders to participate as a fair play. Also they need to prove that they have an adequate bandwidth and domain expertise to regulate this market which is quite different from the other two that they are handling.
The few prominent expectations from traders
- Launch of option contracts and indices which are long due now. This will bring participation of hedgers as a better risk management tools and delight trader with more possible opportunity of trading strategies.
- Crackdown heavily on the unauthorized ‘Dabba traders’ who are acting as the strong competitors to commodity exchanges and playing foul with commodity traders.
- A robust Delivery mechanism is the backbone of the commodity price discovery mechanism, which is the fundamental role of commodity exchanges. The large corporate expects to build better warehousing mechanism and infrastructure to bring in their trust back into these markets.
- Standardise the contract specifications including quality, quantity, date of expiry and various other regulations across exchanges.
With SEBI as a single regulator, the expectations are more effective control over the two markets even though the trading is facilitated on the similar platforms, however the to markets differs in the basic structure, participation, impact, delivery mechanism and so on…