According to the Sebi circular, commodities that require price control measures will be less conducive for the derivatives market.
The Securities and Exchange Board of India has set Rs 500 crore in one of the past three years as the minimum turnover for a commodity to remain eligible for futures trading on exchanges. This will come into effect from April 1.
“For any commodity to continue to be eligible for futures trading on exchanges, it should have an annual turnover of more than Rs 500 crore across all national commodity derivatives exchanges in at least one of the last three financial years,” Sebi said in a circular on Friday.
A commodity that generates less than Rs 2 crore a day in trading volume across all contracts and exchanges will thus be delisted. This is aimed at parking of funds in illiquid contracts to evade taxes.
Sebi has provided three years of gestation for commodities from their launch or re-launch dates.
“Exchanges earn Rs 250 per day for a commodity generating Rs 1 crore of turnover. While the norms are good, the limit should have been much higher for any exchange to launch commercially viable contracts,” said Kishore Narne, associate director, Motilal Oswal Financial Services.
Sebi has also asked exchanges not to consider re-launch of a commodity for at least one year after it becomes ineligible for derivatives trading. Discontinued commodities shall not be reconsidered by exchanges for re-launch of derivatives contracts for at least one year.
Sebi has asked commodity exchanges for a report within three months about the market size, standardisation, storage life, global connectivity, importance of value chain and geographical coverage of the commodities currently active. Exchanges are required to submit documents supporting their claims for any commodity to remain significant for futures trading.
According to the circular, commodities that require price control measures will be less conducive for the derivatives market.
Also, commodities with restrictions imposed by the Essential Commodities Act, Agricultural Produce Markets Committee Act and the Food Control Regulation Act are less conducive for futures trading.
Politically sensitive commodities like sugar and wheat could thus be delisted from derivatives trading in the near future. Also, weather sensitive or seasonal commodities will continue to be traded on the futures platform.
Image: A labourer removes dust from wheat at a wholesale grain market in Chandigarh. Photograph: Ajay Verma/Reuters.