Sebi proposes ways for more transparency in spot price polling mechanism

To improve transparency and credibility to the spot price polling mechanism in commodities, Sebi has proposed to make it compulsory for exchanges to accredit an independent polling agency and bring such agency under its purview. The capital markets regulator has come out with a consultation paper on ways to enhance efficiency in the polling methodology adopted for determination of spot price for commodities.  

 

The availability of correct and transparent information about the spot price of any commodity is essential for arriving at the expected futures prices of the commodity.

 

This is necessitated as any divergence in the linkages between the two prices could lead to adverse impact on the price in two markets -- derivatives and spot, the regulator noted.

 

Under the consultation paper, Sebi has proposed to make it compulsory for exchanges to accredit an independent polling agency for spot price polling, which can do the job independently for all the exchanges on a specific commodity.

 

"This is necessitated because of the fact that the universe of the polling participants is limited and the same participants are being called many times in a day especially where same contract is listed on more than one exchange or the same participant deals in multiple commodities. 

 

"As a result, many a time these polling agents do not answer the calls from the exchanges," the regulator said in the paper issued yesterday.

 

The Securities and Exchange Board of India (Sebi) has proposed for uniformity in approach amongst the exchanges on the process of price polling methodology. 

 

Further, the regulator has recommended bringing the independent polling agency, conducting polling of spot prices, as well as the participants (price submitters) under its purview by registering and supervising them. 

 

Also, Sebi has suggested providing incentive to the polling participants for submitting the spot prices and requiring polling agencies or exchanges to enter into a legal contract with the polling participants for obtaining their services. 

 

The move may put necessary contractual obligations on the polling participants for submission of spot prices.

 

The regulator has sought public comments till July 27 on the proposal and a final regulation will be put in place after taking into consideration views of the stakeholders.

 

There should be alternate means for collection of the quotes from polling participants like e-mail, app, specific web-based application, which could supplement the present system of telephonic conversations, Sebi suggested.

 

"The strengthening of the process of dissemination of spot prices of a commodity may strengthen the convergence and integration of spot and future prices of a commodity thereby enhancing efficiency of both spot and derivatives market," it noted. 

 

In the draft proposal, it has been suggested that exchanges should consider increasing the time slot for collection of price from polling participants.

 

Besides, it proposed to increase the frequency of collection of the prices from the polling participants so that the polling agency can obtain reliable spot prices throughout the day. 

 

"Instead of asking for perception of polling participants about the price of specific grade of a commodity, exchange or polling agency may poll them on the actual traded prices of the commodity with detail of the quality and grade of those commodities traded by them," it added.

 

"It may be explored if the commodity derivatives exchanges adopt the IOSCO principles for the Independent Polling Agencies apart from other suggestions...For spot price determination of the commodities being traded on their platforms," Sebi said.

 

IOSCO (International Organisation of Securities Commissions) is the international standard setter in the field of securities regulation and has members from 115 countries covering more than 95 per cent of the world's capital markets.