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To address the issue of poor correlation between spot and futures prices of commodities in India, the International Advisory Board of SEBI has recommended that the present price polling mechanism to determine spot prices be suitably reviewed.
In polling process, participants are explained the contract specifications in detail and advised to give quotes of the commodity according to the contract specifications.
To ensure better accountability the panel recommended some regulation and financial obligations on the entities participating in the price polling framework.
OECD PrinciplesThe IAB proposed that a close watch on the physical markets was required to reduce the asymmetry between the polled and the actual spot price besides recommending the continuation of both physical and cash settled contracts.
On implementation of corporate governance principles of Organisation for Economic Cooperation and Development, the IAB observed that good corporate governance was an outcome of a combination of self-discipline at the level of corporates, regulatory discipline and market discipline.
Though the IAB felt that that a 100 per cent compliance with the OECD principles was desirable it wasn’t absolutely necessary.
It urged SEBI to have a strategy to implement its existing policies besides complementing the new code with a forward looking approach.
Credit rating agencies
On issues related to credit rating agencies (CRAs), the IAB said suspension with reasons may be the first step and this could be followed up with withdrawal of ratings wherever necessary in cases where information required for rating was not forthcoming from the issuer.
It recommended that issuers should disclose all ratings obtained by them even in case of non-public issues so as to curtail the scope of ‘rating shopping’ (negotiating with different CRAs obtain best rating).
The IAB urged SEBI to work towards improving rating processes, enhancing transparency and removing conflict of interest while leaving the decision on the rating committee to the CRA.
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