INSUBCONTINENT EXCLUSIVE:
Mutual funds and portfolio management services (PMS) are likely to be allowed to participate in the domestic commodities derivatives
market.
The Securities and Exchange Board of India (Sebi) could allow existing custodians in the securities market to offer custodial
services in the commodity derivatives market to enable smoother institutional investors participation in the segment.
The proposal is likely
to be discussed at the Sebi board meeting on Wednesday.
The capital market regulator will also discuss the proposal on allowing mutual funds
to segregate distressed debt securities in their portfolios
The new rules, known as side-pocketing, will give fund houses the flexibility to carve out the defaulted paper from the rest of the
The regulator is likely to accept one of the models suggested by a working group that makes existing custodians in the securities markets,
the custodians for potential institutional participants.
Most commodities are compulsorily deliverable, which is why custodial services are
required for institutional investors.
This was one of the sticking points for facilitating access by mutual funds and portfolio schemes in
the 15-year-old commodity derivatives market
Since Sebi-registered custodians might not have the experience of handling commodities, the settlement process will be done by repository
participants (RPs) on commodity bourses like MCX and NCDEX, said sources.
Repository participants are registered by warehouses regulator
Warehousing Development and Regulatory Authority (WDRA) as warehouse services providers currently handle the goods and are responsible for
quality and quantity parameters
They bear the onus of ensuring good delivery on the commodity bourses currently, and in all likelihood would continue do so even as existing
custodians are allowed safe-keeping of commodities for institutional participants like mutual funds, said Vijay Kumar, MD of agri bourse
NCDEX.
Market participants said allowing mutual funds and facilitation of PMS who can offer structured products will help deepen the
level and proprietary traders and a few corporate hedgers and speculators
Category III alternate investment funds are allowed but are not actively trading
Recently, Sebi allowed foreigners with exposure to underlying Indian commodity markets, but with no presence here, to hedge on the
bourses.
The entry of mutual funds and PMS will attract more hedgers to the market and will lead in its overall development
The average daily turnover of the CDS market is around Rs 30,000 crore, with MCX accounting for around 90 per cent, followed by NCDEX and to
a much smaller extent ICEX.
The working group had suggested another model of allowing existing Warehouse Service Providers (WSPs) to be
custodians, but this is unlikely to be accepted by Sebi as these WSPs are regulated by WDRA
The group which submitted its draft report last month comprised four custodians, the three commodity exchanges, WSPs an AMC and an AIF.
