SEBI to nod for institutional investors to trade in commodities

The outgoing chairman of Securities and Exchange Board of India (SEBI) UK Sinha, who was speaking at the International Commodity Derivatives Conference in Mumbai, said the institutional investors will be allowed to trade in commodities.

The market regulator SEBI, is waiting for the Reserve Bank of India (RBI) to give a green signal for allowing banks to make a foray into the commodities market. Moreover, the first category to get permission will be the mutual funds.

He further added that the spot market development for commodities was hampered by the lack of legislative backing for integration of spot and futures market which has changed since this Budget. The finance minister announced that the government intends to integrate spot and futures market. Institutional investors like mutual funds, insurance companies, foreign portfolio investors, and banks will be allowed to participate in the commodity markets. He also added that newer products will also be introduced to attract investments. 

Options on futures are hybrid derivative instruments that converts options to futures at the time of settlement. The investors can convert instruments into money or other money options to futures at the time of settlement.

In the year 2015, the government had set up the Electronic National Agriculture Market (e-NAM) across India and around 200 markets have been integrated since its inception.

UK Sinha concluded by saying that new products like options on futures will be introduced. The introduction of options may require amendments to the Securities Contracts Regulations Act. The finance ministry is working on the legal framework for options trading and if required, amendments will be taken to the Parliament.