To improve transparency in spot price discovery at commodity exchanges, regulator Sebi has asked bourses to display on their websites the spot pricing mechanism for every contract.
The exchanges have been directed to “have a well laid down and documented policy for the spot price polling mechanism.”
“Transparent discovery of spot prices is a critical factor in smooth running of futures market as the same are used as reference prices for settlement of contracts traded on the exchange platform, Securities and Exchange Board of India (Sebi) said in a circular.
The exchanges have been asked to display the spot price polling mechanism adopted for every contract on its website from September 29.
They also need to give details about the contract, mechanism of spot price polling, method for arrival at spot prices, whether these prices include taxes and other levies, whether mechanism outsourced to any external agency and criteria for selection of these polling participants.
The move is aimed at maintaining the transparency of spot price polling process and dissemination of spot prices arrived at through spot price polling process.
The bourses have been using ‘spot price polling mechanism’ to arrive at the prevailing spot prices. This is being done by polling spot prices reported by spot price polling participants. Some exchanges undertake this activity themselves whereas some have outsourced this work to an external agency, it added.
The exchanges can assign a code such A1, A2, A3 for poling participants of a particular contract and reveal his location and price for the day. This information would be updated on exchange website every day for every contract traded on the exchange platform.
The information would continue to be displayed even after the expiry of the contract for a period of three years.
The exchanges would have to increase the sample size used for fixing the daily spot prices during the last 15 days of the contract.
The bourses have to review on a monthly basis the prices polled by the participants to identify participants habitually polling unrealistic prices. These participants could be put under watch and subsequently removed from the panel if such instances reoccur despite appropriate communications.
They have been asked to provide a separate feedback window for receiving complaints in this regard. The exchanges would have to address such complaints in a time-bound manner.
Further they would have to keep the audit trail of all such complaints received and the steps taken for redressal.