Industry Odisha Bureau, May 11: Striking a balance between minimizing risk factors and formally opening door for the ‘cash settlements’ with caution on selected agri-commodity derivatives, the Securities and Exchange Board of India (SEBI) is reportedly weighing the pros and cons following a green signal believed to be accorded by a SEBI-constituted committee’s report reportedly submitted in February backed by the Commodity Derivatives Advisory Committee (CDAC).
Sources informed that the SEBI panel’s proposal is “to have cash settlements up to a certain extent as deemed appropriate by SEBI in narrow agri commodities such as pepper, turmeric, guar, dhaniya, etc, on which derivatives are offered by NCDEX.”
Sources also informed that the agricultural commodities have reportedly “remained shut out of cash settlements since long”, while at present, “physical delivery is mandatory for all agri-commodity derivatives for which the traders must hand over or take receipt of the physical goods once the futures or options contract expires.”
Elaborating on the agri-commodity derivative contracts, sources further stated that such contracts have been “classified into three categories”, such as: ‘Sensitive’, ‘Broad’ and ‘Narrow’.
While ‘Sensitive Agri-Commodities’ “frequently face government interventions such as stock limits, import-export restrictions, trade barriers”, ‘Broad Agri-Commodities’ “have an average deliverable supply of at least one million tonnes (MT) and a market value of Rs 5,000 crore over the last five years,” and rest of other agri-commodities come under the purview of ‘Narrow Agri-Commodities’.
However, “Ban has been imposed on agri-commodity derivatives trading, especially on wheat, paddy, chana, mustard seed, soyabean, moong and crude palm oil”, sources informed, adding that the ban was reportedly “imposed in 2007 and subsequently extended till March 31, 2027 in a bid to put a curb on food inflation as well as avert excessive speculation in essential agri-commodities.”
Market experts opine that if the CDAC-backed proposal by the specially-constituted panel is accorded seal of approval, it would augur well and good for both the Indian farmers and the NCDEX.
Notably, “National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity and derivative exchange based in India. It has an independent board of directors and provides a commodity exchange platform for market participants to trade in agri-commodity derivatives.”
“NCDEX’s original shareholders were National Stock Exchange of India (NSE), National Bank for Agriculture and Rural Development (NABARD), CRISIL (now known as S&P India), Life Insurance Corporation (LIC) ICICI Bank. Current shareholders include IFFCO, Jaypee Capital Services, Punjab National Bank, Canara Bank, Build India Capital Advisors, Shree Renuka Sugars and Star Agri Warehousing. Incorporated on 23 April 2003 under the Companies Act, 1956 and obtained its Certificate for Commencement of Business on 9 May 2003, NCDEX commenced operations on 15 December 2003.”
Besides, “NCDEX facilitates deliveries of commodities through a network of over 594 accredited warehouses through eight warehouse service providers, with holding capacity of around 1.5 million tonnes and average deliveries of 1 lakh MT at every contract expiry. NCDEX has its offices in Mumbai, Delhi, Ahmedabad, Indore, Hyderabad, Jaipur, and Kolkata”.
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