Commodity and capital market regulator SEBI plans to allow mutual funds and portfolio management service providers participation in commodity derivatives market in less than six months.
SK Mohanty, Executive Director, SEBI, said the discussions with mutual funds and PMS providers are complete and SEBI is in the final stage of announcing the regulation for this segment of market participants in less than six months, to deepen the market and further improve the price discovery process.
The regulator is not averse to even letting foreign institutional investors but the regulatory framework needs to be put in place through a consultative process before taking any decision, he said at a seminar on 'Institutional Participation in Commodity Derivatives' organised jointly by MCX and FICCI here on Tuesday.
At present, SEBI is considering foreign entities, which have a business interest in India, either by way of export or import, to take positions in the commodity derivatives market, he said and added that before doing this it is necessary to have an adequate risk management and surveillance mechanism in place.
In June, SEBI opened up the commodity market for hedge funds registered as Category III Alternative Investment Funds.
The commodity derivatives market, which is valued at $1 trillion, has huge potential to grow as it accounts for barely half of India’s GDP, while in the US and China it is almost 2.5 times of their GDP. For long the Government attempts to liberalise and boost the commodity market faced structural issues. It rose to its peak in 2012-13, but various issues including taxation, dragged the market down, he said.
After the merger of erstwhile commodity market regulator Forward Markets Commission with SEBI, Mohanty said policy measures have been taken to instill investors’ confidence and deepen the market by allowing a new set of investor participation, besides giving permission to launch new products in options trading.
The regulator is facilitating large institutional investments so that there is enough liquidity in far month contracts and there is convergence between spot and future prices in near month contracts, he said.
On the progress of the government plan to launch a spot gold exchange, Mohanty that SEBI has no role to play as spot exchanges are not under its domain.
Mrugank Paranjape, Managing Director, MCX, said mutual funds and PMS would bring in sticky money to the commodity derivatives market and encourage traction in far month contracts.
The exchange is looking at dates between September 5 and 23 for the launch of gold options, he said.