How universalisation of exchanges has changed markets for investors?

By DK Aggarwal

In a major step towards a simpler trading infrastructure, Securities and Exchange Board of India (SEBI) last year announced universalisation of stock exchanges. The announcement for the universalisation of exchanges by integrating the participants, brokers and operational frameworks was made by the then Finance Minister Arun Jaitley in the Budget.

The giant step taken by Sebi has the potential to enhance competition across categories, thus creating deeper markets with lower spreads and exchange fees. To understand the issue, universalisation of exchanges means offering of securities and commodities trading under the same roof.

The mechanism allows investors to trade in all asset categories from a single account with a highly regulated, safer and more transparent trading, clearing and settlement framework.

Moreover, they will have access to a unified trading experience for both asset classes using a single account and reduce hassles. The move is likely to help ensure better liquidity and price discovery. This means an equity investor having margins in his account can deploy the same to trade in gold or crude oil futures in the commodity segment under the rule of universalisation of exchanges.

Since trading in some commodities (precious metals, base metals, crude oil, to name a few) entails currency fluctuation risks, these could be hedged by selling/buying rupee against the dollar on the currency derivatives segment.

The commodity space is still evolving in India and has great potential to develop in the current scenario. Eventually, universalisation of Indian bourses should contribute to boosting competition in commodity trading with the foray of stronger players such as the National Stock Exchange (NSE) and BSE. Both have been continuously launching commodity contracts in their bourses. However, given the significant differences in risk management across various asset classes, it will be a challenge.

Additionally, given the sensitivity of some of commodities, there are other overarching laws that regulate pricing, warehousing, transportation etc.

Actually, increased diversification, commercial direction, and technology-driven enclosure, backed by improved legal, regulatory and supervisory frameworks have propelled the development and maturity of the Indian stock market, leading towards universalisation of exchanges. But it is at a nascent stage and it would be too early to comment on how growth and participation will evolve.
Chairman and MD, SMC Investments and Advisors