SEBI does a WOW, increases transparency in commodity market

In what can be termed as a 'Game changer' for the commodities market in India, Securities Exchange Board of India (SEBI) has proposed new rules for warehouse service providers (WSP) aiming at increasing the transparency in commodity market transactions to avoid frauds like NSEL scam.

The measures if implemented may boost investors confidence in commodities market and has a potential to bring in large investors in the market which will in turn lead to increasing liquidity and may facilitate deepening of the market. The impact will be larger on the agri-commodities where the volumes are abysmally low. SEBI aims to bring WSP under its ambit thus taking one step closer to sync the regulation between commodity and equity exchanges post the merger of FMC with SEBI in September.

SEBI, in a consultation paper, suggested that the accreditation process of warehouses to be more transparent  and needs to be done only after approval from the risk management committee of the stock exchange. Due to fragmented network of warehouses and their service providers it is difficult to get the reliable data on goods stored in warehouses and the value for these goods. It is now mandatory for all the accredited warehouses with the stock exchanges to get registered with the Warehousing Development and Regulatory Authority (WDRA).

SEBI has made strict the eligibility norms for the WSPs making it compulsory for the WSP to be a corporate body with credible promoter being in the business of public warehousing for at-least three years. The measures suggested in the consultation paper by SEBI promises  a healthy and transparent commodity market and can bring cheers to the commodity traders due to hopes of increasing volumes in various commodities.