As per the share market news, the Indian mutual funds may be allowed to trade in the commodity derivatives in the next 6 months.
This decision may help in the deepening of the market and may also provide hedging opportunities to the large companies that normally trade overseas as there are limited liquidity at our exchanges.
According to a senior official, SEBI, the India’s capital markets regulator is going to permit the mutual funds to trade in commodity derivatives and this decision can come any time within a time frame of six months.
It is also confirmed by the executive director, commodity derivatives market regulation department (CDMRD) of the Securities and Exchange Board of India, Mr. S.K. Mohanty, that the Portfolio management services and foreign trading houses that export or import from India will also be permitted to trade in the commodity futures. He added while talking in the industry conference to the press that the participation of the Indian mutual funds is in an advanced stage of examination. The SEBI has reportedly taken the feedback and on that basis the board will finalize the regulatory mechanism.
India, the Asia’s third-biggest economy, had previously allowed commodity futures trading in 2003. But the foreign investors, banks and mutual funds, and many others were not allowed to do so. Earlier this year in the month of June, the SEBI had allowed the FII’s or the institutional investors to trade in commodity derivatives as it said hedge funds registered as category III Alternative Investment Funds (AIFs) can invest in the segment. That was the first time that institutional investors were allowed to participate in the commodities markets in India, as per nifty future news.
It is believed that the Commodity derivatives market has a huge potential in the country. The Indian markets have still not reached to its full potential as it has been in the developed nations. Institutional participation had already enhanced the price discovery and they have also brought in the desired liquidity. Now the Indian mutual funds are allowed to participate in the commodity market of India which is over whelming.
Indian commodity markets have always been affected by structural issues and the role of the Sebi was to make sure that there is no illegal forward trading. The changes in the situation happened after the payment crisis at the National Spot Exchange Ltd (NSEL) which was found to be a fraud of ₹ 5,574 crore. The forward markets commission (FMC), the commodity markets regulator was merged with Sebi in September 2015.
Now the market regulator knows that the market is nascent and needs new products to be sustained by large diversified participation. To create more facilities and nurture liquidity, the government had put up a high level committee to look at derivative and spot market as investment avenues for institutional investors earlier this year in the month of June. After which the participation was made open to the institutional investors
