The Ban On Agri Commodities Futures Is Weak In Law And Economics

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Finally, let’s assume that the sovereign is concerned about price rise in the spot market for these seven commodities and this is indeed a proper purpose and a fit measure. Even then, the prohibition raises several questions on whether checking price rise is within SEBI’s legal mandate. To be sure, SEBI’s mandate, as articulated in the preamble of the SEBI Act, involves investor protection, regulation, and development of the securities market. Price stability, on the other hand, is the core mandate of the RBI.

If anything, there are good arguments, made by several other authors, on how such prohibitions may in fact impede the development of an agri-futures market.

The origin of this prohibition could perhaps be traced to the Securities Contracts Regulation Act, 1956 which allows the central government to notify the commodities on which commodity derivative contracts may be written. It is unclear whether the prohibition on the issuance of new contracts originated from the central government or not. In any event, the issuance of this direction from SEBI to the exchanges raises critical questions on the independence of securities markets’ regulatory policy.

This is a key objective for the creation of an independent statutory regulator for the Indian securities market. Whichever way you see it, the ban is weak in form, substance, and optics.