No new commodity futures till liquidity improves: Sebi

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Mumbai | Published: May 6, 2016 5:18:24 AM

Mulls changes to consent norms that would enable settling ‘insignificant’ cases

The Securities and Exchange Board of India (Sebi) chairman UK Sinha on Thursday said the markets regulator will not bring in new products in the commodities derivative market unless they have enough liquidity.

Sinha said the regulator is continuously reviewing the risk management framework in the commodities segment and it would take a few more months to bring in the mechanism at par with the securities market.

“Price discovery in this country is very complex. For example, the physical market is controlled by the states and there are many obstacles and measures under the essential commodities Act. I am not saying it is good or bad but these are difficulties…and what is the actual stock, what is the actual crop output, such information is not available to us well in time,” said Sinha on the sidelines of Thomson Reuters Risk Summit.

The problems in the physical market and also the stage of development of warehousing mechanism in the country doesn’t give Sebi the comfort to progress on the same in a big way immediately, Sinha added.

According to Sinha, the markets regulator is considering changes to its consent norms by bringing in a new provision that would enable settling all ‘insignificant’ cases without any “market-wide impact” on payment of certain charges.

Under the consent settlement process, an entity facing a probe by Sebi is subjected to certain fees and restrictions without admission or denial of alleged irregularities, and the regulator thereafter drops its charges and the investigations with a caveat that all disclosures made to it are correct.

“The cases pertaining to serious securities market violations, which may have severe impact on the markets, would be left out of the consent framework. Sebi’s intention is that we focus more on serious cases. So we want insignificant cases are taken through this (consent mechanism). Accordingly, we have clarified that to the team, through a guideline… The next stage is that there is demand from experts that Sebi should do this through a regulation. So we will be moving in to introduce such changes for some regulations on that,” he said.

The decision comes almost three years after the Rs 5,600 crore scandal broke out at Financial Technologies-run National Spot Exchange (NSEL) in July 2013, which dealt a blow to the then thriving commodities markets.

Sebi took over the regulation of the commodities market in September 2015 after the Forward Markets Commission, which had the mandate to regulate the commodities trading including futures, was merged with the stock market regulator. The NSEL scam was one of the reasons that led to the merger.

On curbing ponzi schemes in the country, Sinha said that Sebi has taken action against over 250 companies since the launch of Collective Investment Schemes norms. “Since the time we got the powers to deal with such firms, we have been able to stop them from illegally collecting money from small investors,” said Sinha.

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