It’s not just the prolonged bull-run that’s being celebrated by investors in the market. As the New Year steps in, investors are going gaga over the market reforms ushered in by the regulator, Securities Exchange Board of India (Sebi), under chairman Ajay Tyagi who’s been also pro-active in cleansing the bourses of corrupt practices.
Sebi’s decision to allow BSE and NSE to offer commodities on their platforms is a booster dose for investors in 2018. Simultaneously, commodities exchanges like NCX and NCDEX have been given flexibility to offer equities for their trading members. The decision makes life easy for investors seeking to maintain just one trading account across asset classes. Small investors looking for relief from juggling between different accounts will be at advantage. Also, the transaction costs for small investors would be cut substantially. Given that commodities markets and forward markets commission (FMC) came under the Sebi umbrella, it makes sense to integrate the operations of both equities and commodities exchanges right from top to bottom. This will not only add heft to the Indian markets but act as balm in unification process.
The process could widen further by bringing about formal linkages with other financial products offerings like fixed deposits, investment linked insurance policies, pension funds and even the basic savings accounts currently maintained in banks. If government can think of having a super financial regulator to oversee orderly development of markets across asset classes, why cant investors benefit from unified trading platforms.
For instance, Sebi can think of bringing in financial products and real estate assets on to the commodities and equities trading platforms. Establishing real time linkages in valuation of assets in different classes will also help investors weigh in the comparative advantages or disadvantages along with cost benefit analysis of various products.
Advanced markets in the US and Europe do have real time linkages and common platforms that offer commodities, equities, financial products and real estate etc. In countries like India, streamlining the trading in assets of different classes may face some initial hiccups. Given that our regulators have been one of the best globally, sanctity of bourses have had been largely maintained without a big blemish.
Investors will have to wait till October 2018 for experiencing the relative advantage of having one trading account for both commodities and equities. Going forward, there’s no reason why foreign exchange products cannot be brought on to this platform. Also, this could be preceded by linking up commodities specific exchanges in spices, rubber to be brought on to the NSE, BSE platforms with 23 other smaller exchanges interlinked.
Already, the intermediaries, including brokerages, have begun to get their platforms ready to trade in both commodities and securities. Beginning October 2018, these brokerage firms and traders will be able to trade in different segments like equities, equities derivatives, commodity derivatives, currency derivatives, interest rate derivatives, futures and debt instruments as well.
Finance minister Arun Jaitley had pushed for vertical integration of both commodities and equities markets as part of this financial year’s budget. Phased integration is expected to spread over three years after Sebi–FMC merger happened in 2015. If this process has to widen further, Jaitley will have to use the budget presentation on February 1 to announce next phase of market reforms bringing in all financial products, including foreign exchange instruments under this umbrella.
Integrated Indian market will also offer larger opportunities for investors with deep pockets from other countries given that norms for foreign portfolio investors (FPIs) have been further relaxed by Sebi.While evolution of a single market happened, biggest challenge for Sebi to ensure that fraudsters were locked up and interests of small investors were protected.