While Sebi has already allowed trading in commodity option, it had long been deliberating allowing allowing trading in indices. This is because unlike equity indices, commodity indices are not directly useful for hedging in general but are used more for assets allocation.
According to sources, once MCX is ready with the first set of new indices, prepared using more scientific methods, existing indices for metals, agri-products and other commodities are likely to be phased out.
Sources close to the development said, "In the first phase, MCX proposes to have around 5-6 Indices -- a few product-based Indices, a few single-commodity ones and a composite index. The exchange is trying to be ready for dissemination by September 2017."
Once index trading is permitted, Sebi is expected to look at allowing commodity-specific exchange traded funds (ETFs) similar to gold ETFs and portfolio management services (PMS). These were banned a few years ago when the Forward Markets Commission (FMC) was regulating commodity derivatives.
A commodity broking industry veteran said that they had recently met Sebi officials and proposed to allow PMS in commodities, as now the market is under a strong and powerful regulator.
Sebi has also allowed category-3 alternative investment funds or hedge funds in commodity derivatives, and has moved to integrate businesses of commodity broking and share broking, which means that all businesses can be transacted under single entity, allowing fungibility of capital and clients' margins.
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