Capital market regulator the Securities and Exchange Board of India (Sebi) announced the much-awaited commodity market reform of permitting exchanges to launch options contracts.
The move would deepen the domestic commodity market and provide farmers and other participants a new hedging tool, in a more cost-effective manner. Sebi also announced a single-licence regime, allowing stockbrokers to deal in commodities and vice versa. It said within a year, it would allow a single licence for exchanges as well.
The move will help the Multi Commodity Exchange (MCX) to launch equities trading, and the National Stock Exchange (NSE) and the BSE to foray into the commodity derivatives space. Addressing the media after his first board meeting as Sebi chairman, Ajay Tyagi said unlike equity derivatives, options in commodities would not be cash-settled and detailed guidelines on it would soon be issued. Beside commodities, Sebi made a slew of other announcements on initial public offerings (IPOs), mutual funds (MFs) and the corporate bond market.
The regulator accorded a qualified institutional buyer (QIB) status on systemically important non-banking finance companies (NBFCs). These have net worth of more than Rs 500 crore. The move will give NBFCs greater play in the IPO market, as nearly half the issue size is reserved for QIBs. Earlier, NBFCs had to invest in the non-institutional category, which has only 15 per cent reservation.
To ensure transparency in the use of proceeds, Sebi said all IPOs raising Rs 100 crore or more in fresh equity capital will have to appoint a “monitoring agency”. The agency will have to ensure adequate supervision and utilisation of the funds raised.
Sebi also tightened the framework for such agencies. Until now, the appointment of the monitoring agency was mandatory only for IPOs that raised over Rs 500 crore.
Tyagi said the move was proposed on fears that capital raised in IPOs could be misused or siphoned off.
The regulator eased the preferential allotments norms for banks and certain financial institutions. The six-month lock-in requirement on pre-preferential allotment shareholding will be waived. Also, the norms that make an entity ineligible to participate in a preferential allotment if it has sold shares of the issuer in the preceding six months will also be relaxed.
Sebi said residents and non-resident Indian (NRIs) are not allowed to take direct or indirect exposure to the market participatory notes (p-notes). He said the rule was currently in the form of frequently-asked questions (FAQs) and Sebi wanted to give it more legal sanctity.
Tyagi said there are no fears as such of NRIs’ money coming into the market through the p-note route.
Sebi also allowed buying MFs through e-wallets, such as Paytm, Mobikwik and Freecharge.
To begin with, Sebi has taken a conservative approach by allowing purchase of units worth up to Rs 50,000 per mutual fund each financial year.
Also, redemptions of such investments can be made only to a bank account of the unit holder. Payment to e-wallets will not be allowed through credit cards or reward points.
Sebi also allowed instant redemption facility for liquid schemes, to allow faster redemptions.
“Mutual fund assets crossing the Rs 18-lakh crore mark is good. We need to go deeper. We need to make use of the post-demonetisation impact and hence, will be taking many more decision to help MFs,” said Tyagi. “Enabling payments through e-wallets adds another payment option,” said Kaustubh Belapurkar, director – fund research, Morningstar Investment Adviser India.
Sebi announced a new framework for consolidation and re-issuance of debt securities aimed at boosting the bond market and infusing more liquidity. Tyagi said the amount mobilised through the corporate bond market in 2016-17 was higher than the bank credit growth in the country.
What came out of the meeting
Launch of options in commodity derivatives: Announces reform, allowing options trading in commodity market
Single broking licence for equities and commodities: Stockbrokers will be allowed to deal in commodities and vice versa. Within a year, Sebi plans a single licence for exchanges as well
NRIs blocked in P-notes: Sebi clarified and strengthened the regulations to bar resident and non-resident Indians from taking direct and indirect exposure to Indian markets through P-notes
Tighter monitoring of IPO proceeds: Mandatory ‘monitoring agency’ for IPOs above Rs 100 crore to ensure adequate supervision and utilisation of funds raised