Sebi proposes one commodity, one exchange model to make India influence global prices

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To deepen and grow commodity markets in India with an intention to make India a price-setter than a price-taker, the Securities and Exchange Board of India has proposed, ‘one commodity, one exchange’ plan even though currently multiple exchanges are allowed to launch contract on the same commodity to create competition and give choice to investors, says a report in Business Standard.

As of now, the Multi Commodity Exchange (MCX) is a major player in metals, precious metals and energy contracts, while National Commodity and Derivatives Exchange (NCDEX) in agriculture) segment and Indian Commodity Exchange (ICEX) in diamonds, paddy and steel. However, according to the regulator, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) are not able to grow and the Sebi argues that if exchanges focus on a one or two commodities then they can grow meaningfully.

So far India is a major consumer and producer of wheat, rice, pulses, spices, cotton, tea, rubber, iron ore, steel, gold, silver and diamonds. In case of diamonds, rice, rubber, sugar, iron ore etc it is playing bigger role in global markets by being a major importer and exporter. But yet, India is not in a position to set the global price.

In a concept paper issued recently on the subject, Sebi also cited global examples of some exchanges playing a significant role when they develop only one or two commodities. For example, China has been a major producer and consumers of several commodities, but after it launched exchanges focused on certain commodity it started influencing global prices of those commodities and price discovery.

Sebi wants to develop similar model in India where exchanges will have to select a commodity in which only that exchange can deal and they have to develop market for that commodity in 3-5 years after which other exchanges may be allowed to enter. Sebi has also proposed that going forward, each exchange can select 2-3 goods from the notified list of 91 commodities on which no derivative products have been launched by any exchange. Sebi has offered exchanges which select such commodity or get some commodity included in the notified list can offer liquidity enhancement benefits and Sebi has shown a preparedness to relax daily and position limits and daily price limits in such cases.

Shekhar Ghosh is a communications consultant and and former journalist, who has edited and written for publications such as like Business India, Business Standard, Business Today and Outlook.

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