SEBI Current Affairs
The capital markets regulator Securities and Exchange Board of India (SEBI) has allowed India’s top two stock exchanges BSE Ltd and National Stock Exchange of India Ltd (NSE) to launch commodity derivatives trading from 1 October, 2018. This approval is part of SEBI’s December 2017 announcement of having unified exchange regime wherein stock exchanges will be allowed to offer trading in commodities derivatives. By unified exchange regime stock exchanges need not to set up different entities to offer commodity trading.
With this approval, BSE will begin trading in commodity derivatives with non-agriculture commodities like metals initially, followed by agri-commodities subsequently. NSE will launch its commodity derivatives segment trading in non-agriculture commodities in initial phase, followed by agriculture commodities, subject to SEBI approval.
Universal exchanges will help in achieving integration of trading in commodity derivatives market with other segments of securities market at exchange level. It will help in providing efficient price discovery, reduction in timelines, cost effective, user-friendly, robust risk management system and wider market penetration. It will help in creating deeper markets with lower spreads and exchange by enhancing competition across all categories of trading. It will offer greater convenience as traders will be able to trade all asset categories from single account. It may also lead to consolidation of cross-holding norms as mergers between exchanges of different categories appear attractive. In longterm, Indian exchanges will find it easier to compete with their global counterparts and they are present in multiple segments.
Equity exchange: It is market in which shares are issued and traded, mostly through exchanges. It is also known as stock market. It gives companies access to capital and investors slice of ownership in company with potential to realize gains based on its future performance. Stock or securities traded in the equity market can be either public stocks, which are those listed on stock exchange or privately traded stocks. In India, NSE and the BSE offer equity and equity derivatives.
Commodity exchange: It is market is mostly related to food, metals or energy derivatives that are important part of everyday life. Types of commodities in this market includes metals like gold, silver, etc., energy like crude oil, natural gas etc. This trading traditionally move in opposition to stocks, so they are used as significant way to diversify portfolio beyond traditional securities. In India, MCX and NCDEX specialise in commodity derivatives.
Universal exchanges: In this market, any exchanges i.e. can capital market or commodity exchange can offer each products in equity, commodity derivatives, and debt and currency segments. By this stock exchanges need not to set up different entities to offer commodity trading and vice versa.
Investments through participatory notes (P-notes) into Indian capital markets- equity, debt, and derivatives have plunged to over nine-year low of Rs 80,341 crore till July 2018-end. This is the lowest level since April 2009 when the cumulative value of such investments stood at Rs 72,314 crore.
The decline comes amid stringent norms put in place by market watchdog Securitas Exchange Board of India (SEBI) to check misuse of these instruments. In July 2017, Sebi had notified stricter norms stipulating fee of US $1,000 on each instrument to check any misuse for channelising black money. It had also prohibited FPIs from issuing such notes where underlying asset is derivative, except those which are used for hedging purposes. Earlier in April 2017, SEBI also had barred resident Indians, NRIs and entities owned by them from making investment through P-notes.
Participatory Notes (P-notes)
P-notes are offshore/overseas derivative instruments (ODIs) issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be part of the Indian stock market without registering themselves directly. They, however, need to go through due diligence process. P-Notes are not used within the country but are mainly used outside India for making investments in shares listed in the Indian stock market. SEBI had permitted FIIS to participate and register in the Indian stock market in 1992. Earlier, investing through P-Notes is very simple and is very popular amongst FPIs, FIIs.