What’s One Commodity One Change proposal?

Presently there are a number of exchanges in India which have competing contracts on the identical commodity, ensuing within the fragmentation of buying and selling volumes. Having a single trade launching contracts of a particular commodity spinoff might end in greater volumes and have an even bigger affect. Globally, Bursa Malaysia Derivatives has developed a distinct segment for crude palm oil, CME Group of the US is thought for its contracts on soyabean, corn, wheat, gold, silver, crude oil and pure fuel, whereas LME within the UK has gained a distinct segment in non-ferrous metals akin to aluminium, nickel, zinc and lead.

Who has proposed this and why?

Market regulator SEBI has floated the One Commodity One Change proposal via a session paper and has sought public feedback. Although India is both one of many largest customers or producers of numerous commodities, it has little or negligible say in setting commodity costs in such merchandise. When inventory exchanges have particular commodity contracts for buying and selling completely on their platforms, they’re more likely to deal with growing varied elements akin to enough warehousing and storage, transport, communication applied sciences and setting requirements for that individual commodity. Such measures by all inventory exchanges for his or her respective commodities would result in the event of the commodity derivatives market in the long term.

Will it apply to all commodities?

Of the 91 commodities notified by SEBI for buying and selling in derivatives, buying and selling occurs in 40 commodities solely. Even when every inventory trade focuses on two-three merchandise of the 50 remaining commodities, they’ll develop 10-15 merchandise in two-three years’ time. Such an effort by inventory exchanges, if profitable, could give the mandatory ahead push to the Indian commodity derivatives market in a number of the commodities and could also be profitable in bringing the eye of the world to Indian markets. In case of agri-commodities, the idea must be relevant to slender agri-commodities, which don’t fall into the delicate and broad class. Spices akin to coriander or jeera, the place manufacturing is concentrated in a particular area however has excessive volatility, are examples of slender agri-commodities.

Will such a transfer scale back competitors out there?

SEBI believes that the proposed idea doesn’t goal to thwart the competitors amongst inventory exchanges. Nevertheless, it might present a brand new impetus to inventory exchanges to develop a market of their chosen commodities for the good thing about the stakeholders, relatively than chasing the identical set of stakeholders of a specific commodity. The idea just isn’t in opposition to the idea of common exchanges and isn’t being developed to carry any restrictions. Quite, it has been developed to curb the follow of inventory exchanges that merely copy merchandise launched by different inventory exchanges and depend upon shift of demand relatively than increase new demand.

What does SEBI search to attain by doing this?

By means of the proposed One Commodity One Change, SEBI is aiming at lowering fragmentation of liquidity and serving to each inventory trade develop an unique set of un-fragmented liquid contracts. By means of this, SEBI goals to carry in regards to the complete growth and deepening of the Indian commodity derivatives markets and assist India to be ready in order to in a position to affect the worldwide benchmark pricing of such commodities and turn out to be a value setter for such commodities.

What are the dangers in selling one commodity one trade?

It could create synthetic limitations at the price of different markets and worth chain contributors, resulting in elevated total prices, together with buying and selling, compliance and expertise. Exchanges could block sure merchandise for themselves however subsequently could not meaningfully develop them. An trade, after making efforts for an preliminary interval of 6 months to a 12 months, could lose curiosity and resolve to not make investments additional in that product and block different exchanges from launching that contract. Permitting just one trade to supply merchandise in a commodity for 3-5 years could go in opposition to market growth because the designated trade could fail to construct liquidity, however on the similar time would proceed to get pleasure from a monopoly standing within the stated commodity.