India Regulators Discuss Allowing Banks To Trade Commodities

India’s securities market regulator and its central bank are exploring the prospect of allowing commercial lenders to trade in commodity derivatives, a move aimed at deepening liquidity in the asset class.

The Securities and Exchange Board of India is in discussion with the Reserve Bank of India to help banks participate in commodities derivatives, the SEBI Chairman Tuhin Kanta Pandey said at an industry event on Thursday. The regulator said it will work with the central bank on a framework that allows prudential access to the market for financial institutions.

Pandey’s comments come as the SEBI looks to increase institutional participation in the country’s exchange-traded commodities derivatives market that is often plagued by low liquidity and frequent bans on agriculture contracts due to speculation.

“We are a large user of commodities, but are practically price takers,” Pandey said. “The depth of the market has to improve.”

If approved, the plan will be the latest measure by the country’s apex bank regulator to loosen constraints on lenders’ ability to deploy their excess capital. The RBI in October announced plans to permit local banks to finance mergers and acquisitions, a move expected to boost the country’s $40 billion-plus deals market.

A deepening commodities derivatives market in India will also benefit high-speed trading firms that are increasingly exploring ways to trade on local bourses. Billionaire Ken Griffin’s Citadel Securities LLC last month said that it is mulling an entry into commodity markets in India where “growth is tremendous.”