RBI, IRDAI Oppose Banks, Insurers In Commodity Derivatives; MCX Falls 3.4% In Early Trade

India’s banking and insurance regulators are not in favour of allowing their entities to invest in commodity derivatives, the Securities and Exchange Board of India (SEBI) Chairman Tuhin Kanta Pandey said on Monday, dampening expectations of wider institutional participation in the segment.

Pandey said both the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority of India (IRDAI) have shown reluctance to the proposal. The stance comes months after SEBI flagged plans to engage with the government to allow banks and pension funds into commodity trading to deepen the market.

Fall In MCX Shares

Shares of Multi-Commodity Exchange of India (MCX) fell 3.4% in early trade following the comments. At 2:02 pm, MCX shares were trading at ₹2,910.70 a piece on the National Stock Exchange of India (NSE).

The stock reaction reflects investor concern that the absence of large institutional players could limit liquidity growth and volumes on domestic commodity exchanges.

Push For Broader Participation Faces Hurdles

In September, SEBI had outlined an agenda to strengthen commodity markets. This included discussions with policymakers on permitting banks and pension funds to participate in derivatives trading. Such a move was seen as a way to bring in long-term capital and improve price discovery.

Pandey said India’s pension regulator had also examined allowing pension funds to invest in commodity derivatives. He did not disclose whether a final decision had been taken.

The lack of alignment among regulators comes at a time when global markets have deeper institutional participation in commodities. In India, trading remains largely driven by proprietary desks, brokers and smaller participants.

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AI Risk Advisory In The Works

Separately, SEBI will soon issue an advisory to market intermediaries on risks linked to emerging artificial intelligence tools, including Anthropic’s Mythos, Pandey said.

The regulator wants intermediaries to prepare for potential system vulnerabilities arising from the use of such tools. The advisory will focus on operational safeguards and risk management practices.

Sources:

The Economic Times

Moneycontrol