Markets regulator, the Securities and Exchange Board of India (SEBI) has directed commodity exchanges to form a product advisory committee (PAC) for each group or complex of commodities within a month to bring transparency in the designing process of commodity derivatives contracts.
In a circular dated August 7, Sebi asked commodity exchanges to form committees for each product or a group of products within a month, comprising member exchanges, trade associations, traders and value chain participants.
The committee should mandatorily meet at least twice a year or more frequently depending upon the requirement and give recommendations to their respective exchanges. The respective exchange, according to the Sebi circular, will set the agenda of the meeting and publish details of the committee and its recommendations.
Every committee will be chaired by an independent person with experience in the specific commodity and will be supported by a vice chairman from the exchange.
The PAC will be consulted for contract design on new commodities and review of design of existing contracts, to ensure that contract specifications represent the industry’s need in terms of alignment of quality/quantity specifications of the product with the physical market, choice of basis and additional delivery centers, appropriate premium/discount for additional deliverable quality/ delivery at additional delivery center, etc.
It will also be consulted for discussion on the “State of the Markets for the commodity” at every meeting, review of the delivery centres as well as recommendations with respect to modifications of delivery centres, review of suggestions/feedback/complaints received by the exchange regarding the commodity/contract and action taken thereon, and Performance review of the existing contracts on various parameters. Commodity exchanges will, however, have the right to accept, reject or modify any recommendations made to it by the PAC, by recording the reasons thereof, SEBI said.