Market regulator SEBI on Wednesday decided to grant a unified licence to brokers and clearing members to operate in commodity derivative as well as equity markets.
SEBI’s board approved a proposal for integration of stock brokers in equity and commodity derivative space.
Following this, a broker or clearing member dealing in the securities markets will be allowed to buy, sell or deal in commodity derivatives without setting up a separate entity and vice-versa. To enable the integration, SEBI will amend norms pertaining to stock broker and securities contract regulations, the regulator said in a statement after the first board meeting under Ajay Tyagi as chairman.
“The integration of stock brokers in equity and commodity derivative markets while having many synergies in terms of trading and settlement mechanism, risk management, redressal of investor grievances, etc would benefit investors, brokers, stock exchanges and SEBI,” the regulator said.
Besides, it will increase economic efficiency in terms of meeting operational and compliance obligations at the member level, potentially resulting in ease of doing business.
Also, the integration will help in widening market penetration and facilitate effective regulatory oversight by stock exchanges and SEBI.
Finance Minister Arun Jaitley, in his budget speech for 2017-18, had announced that the “commodities and securities derivative markets will be further integrated by integrating the participants, brokers, and operational frameworks”.
Stricter P-Note norms
Bolstering steps to curb any flow of illicit funds in markets, SEBI also decided to bar resident as well as non-resident Indians from making investments through participatory notes.
The decision is part of efforts to strengthen the regulatory framework for offshore derivative instruments (ODIs), commonly known as participatory notes (P-Notes), which have been long seen as being possibly misused for routing of black money from abroad.
“An express provision shall be inserted in the regulations to prevent resident Indians/NRIs or the entities which are beneficially owned by resident Indians/NRIs from subscribing to ODIs,” SEBI said.
Asked whether there were fears that NRIs might be investing through P-Notes route, Mr. Tyagi said, “I don’t think there is any fear of that... The intention all along was not to allow them and that was not clearly reflected in the regulations, only through FAQ. And so it (is being) clarified through regulations.”
The notional value of these instruments has declined over the years from 55.7% of overall FPI investments in June 2007 to just 6.7% in December 2016.
There was a surprise uptick in March — presumably due to this being the last month for availing of certain tax benefits.
There are also fears that the P-Note investments may start coming from other jurisdictions like the U.S., France and the Netherlands after tightening of rules for inflows from Mauritius, Singapore and Cyprus.
