SEBI Tweaks norms for commodity exchanges
05, Jan 2019
Prelims level : Economy
Mains level : Transport and marketing of agricultural produce
In News:
- Commodity derivatives exchanges will now have to disclose the quantum of trading done by farmers and other commodity market participants like millers and wholesalers on the exchange platform, as the capital market regulator has tweaked the disclosure norms.
Explained:
- Securities and Exchange Board of India (SEBI) directed commodity bourses to disclose the open interest and turnover of various categories of participants like farmers, farmers producer organisations (FPOs), value chain participants, proprietary traders, foreign participants, and domestic financial institutional investors.
- Value chain participants include processors, commercial users like dal and flour millers, importers, exporters, physical market traders, stockists, cash and carry participants, produces and wholesalers among others. Currently, commodity derivatives exchanges disseminate turnover data for only two broad categories of participants — clients and proprietary.
- Incidentally, the SEBI move assumes significance also because a large section of market players believe that the commodity market turnover is largely dominated by speculators and other participants that are not genuinely connected with the commodity segment.
Significance of The Move:
- It will bring transparency in the market
- It helps in bringing the correct value of profitability of companies thereby reducing the tax evasion
- It reduces the market distortion caused by the middlemen and helps in realizing effective price
What is commodity market?
- A commodity market is a place where one can buy, sell or trade various commodities at current or future date.
- Commodities trading can be done by using futures contracts. A futures contract is simply an agreement between the buyer and seller to buy or sell a commodity at a particular price on a stipulated future date.
- Most of the commodity markets across the world trade in commodities such as wheat, barley, sugar, maize, cotton, cocoa, coffee, milk products, pork bellies, oil, metals, etc. Commodities exchanges usually trade futures contracts on commodities.
The commodity exchanges in India includes:
- National Spot Exchange Limited (NSEL)
- Indian Commodity Exchange Limited (ICEX)
- Multi Commodity Exchange (MCX)
- National Commodity and Derivatives Exchange Limited (NCDEX)
