SEBI oversees and regulates
dealings in shares and other securities traded on the stock exchanges. However,
for several years now it has also been regulating trading in commodity
derivatives on commodity exchanges. It has replaced the Forward Markets
Commission and the SEBI Act and Regulations / Circulars issued thereunder have
effectively replaced the Forward Contracts (Regulation) Act, 1952.
While the regulator is
common between the two markets now, and although there are fundamental
similarities between trading in securities on stock exchanges and on commodity
exchanges, there are fundamental differences, too. The contracts in derivatives
have broad similarities in both the markets. The regulator also recognises a
fundamental similarity, that is, ensuring fair price discovery in a
regulated market that is free of wrongful influences. Thus, for example,
price manipulation is as much a cause for worry for commodity markets as it is
for stock markets.
The volumes of trades in
commodity exchanges are fairly high. However, other than the much-discussed
matter of NSEL, there have been few orders by SEBI relating to the commodity
market. A recent SEBI order (“the Order”), which has been promptly reversed on
appeal to the Securities Appellate Tribunal (“SAT”), thus becomes a good case
study to review some broad aspects pertaining to the commodity market.
However, apart from
considering issues specific to commodity markets, this order also raises some
important issues relating to the type of orders that SEBI can pass; for
What are the situations where SEBI can pass ex
parte interim orders?
Under what circumstances can SEBI debar parties
from dealing in the markets?
These questions are
important because an ex parte interim order debarring a person may not
only result in huge losses to him but may even sound the death knell for his
One of the primary concerns
in the commodities market is the