Sebon to introduce commodities regulation soon
KATHMANDU, SEP 22:
The capital market regulator is in a hurry to bring the commodities and derivatives market under the regulatory ambit at the soonest following the furore about shady activities of the exchanges, but the move has raised concerns about its effectiveness.
Securities Board of Nepal (Sebon) had already submitted a preliminary draft of the regulation to the High Level Financial Coordination Committee on Monday. “The committee
has given its feedback and we will incorporate those suggestions in the final regulation,” said chairman of Sebon Baburam Shrestha.
The high-level committee comprising of the finance minister, finance secretary, chairmen of Sebon and Insurance Board, and governor of Nepal Rastra Bank had formally commissioned Sebon to regulate the commodities market as soon as possible.
Commodities market has come under fire after Sebon released its study report on the undertakings of the exchanges last month. Even though the report did not find any illegal undertakings by these exchanges and the brokers, it, however, substantiated doubts that the market operation is not in favour of investors.
Moreover, suspicious trading software, lack of transparency and bad corporate governance, have left investors vulnerable. Fearing similar activities, Sebon had already started proceedings to frame a regulation but the process got derailed as an amendment to the Securities Act to include the commodities and derivatives market under Sebon’s jurisdiction was halted due to the dissolution of parliament.
“We still need to amend the Act, but for the time being we can regulate the market with the authority bestowed by Securities Act that says Sebon can regulate contractual trading, and since commodities market also trades contracts we can regulate them through that for the time being,” pointed out Shrestha.
The draft spells out the clause regarding fit and proper criteria, disclosure, transparency, corporate governance and trading procedures. However, such hastiness in bringing the regulation has raised doubts that the regulation will be ill-conceived and only benefit the exchanges and brokers, and not investors.
“A little delay will not hurt much, but trying to regulate with half-baked laws will only backfire as exchanges will get a regulation they desire but there will be no guarantee that investor rights will be protected,” said a member of the study team that conducted the research on Nepali commodities market for Sebon.
The commodities market has mobilised investment worth Rs 250 million, with Rs 13 billion investment from investors. And 80 per cent of investors lose their investment.
There are seven commodities exchanges –– with the latest Everest Commodities Exchange –– operating in Nepal that provide a portal to buy or sell contracts of precious metals, crude oil, natural gas, base metals and agricultural products at an agreed price but transactions are held for speculative motive only.
“Regulation needs to steer exchanges to facilitate commodities trading for hedging and arbitrage purpose too. Then only will its economic utility be realised,” said the study team member.
Source: THT
