The Security Exchange Board of India (SEBI) have permitted mutual funds and portfolio services (PMS) for trading at commodity market. The board be meeting in the second week of March. SEBI has already made provisions for its entry as a new participant.
It is reported that SEBI has tweaked its regulations so that warehouse receipts can be used as collateral. But they refused to take responsibility of under-lying assets, which are at warehouses. This also brings to mind the National Spot exchange fiasco which took place few years back.
In 2013, the NSEL was in soup because there were no commodities present as those mentioned in the book. SEBI has spoke about the various changes undertaken after the NSEL incident. This issue has to be cleared between the custodian and mutual funds.
Warehouse receipts are validated by the Warehouse Development and Regulating Authority. This increases its status and value.
A custodian is a bank or trust company or a financial institution for safeguarding securities owned by a mutual fund. Mutual funds and PMS traded in commodity markets can see a boost in commodity markets in terms of reception. SEBI may also give its approval for indices in the commodity markets. SEBI will finalize the indices and review the comments from some exchanges. SEBI also plans on starting two indices- one agriculture based and one non-agriculture based. It will begin its operation soon.
