India’s financial regulators have taken a cautious stance on allowing banks and insurance companies to participate in commodity derivatives trading, according to remarks made by SEBI chief Tuhin Kanta Pandey.
Pandey said that both the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDAI) are currently not inclined to permit such participation due to risk and structural concerns. As a result, banks and insurers are expected to remain out of the commodity derivatives segment for now.
The clarification comes even as the Securities and Exchange Board of India (SEBI) had earlier explored expanding participation in the commodities market to deepen liquidity and improve price discovery. SEBI had also discussed allowing banks and pension funds to enter the segment as part of efforts to strengthen the ecosystem.
However, the latest stance from the RBI and IRDAI indicates that the proposal has hit a regulatory roadblock. Officials believe commodity-linked instruments may not align with the long-term investment mandates of banks and insurance companies, and could expose them to additional volatility risks.
Following the remarks, market sentiment turned negative for commodity exchanges. Shares of Multi Commodity Exchange of India (MCX) fell by around 3–3.5%, reflecting concerns that reduced institutional participation could limit liquidity and trading volumes.
MCX, which dominates India’s commodity derivatives market, is particularly sensitive to regulatory changes affecting institutional access. Investors worry that without banks and insurers, the growth potential of the segment could be constrained in the near term.
At the same time, SEBI’s broader agenda to develop the commodity market remains in focus, including earlier proposals to involve pension funds and other long-term investors. But regulatory alignment between the three major bodies, SEBI, RBI, and IRDAI, appears to be the key hurdle.
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