SEBI allows custodial services in commodity market

Markets regulator Securities and Exchange Board of India (SEBI) has recently allowed custodial services in the commodity derivatives market. Under the new framework, existing custodians will be permitted to add commodities as an asset class and provide physical delivery of both the securities and commodities. Currently, the regulation on the custodian of securities provides safekeeping of securities, gold or gold related instruments, title deeds of real estate and incidental services. However, it is not applicable for protection of goods, which are underlying assets of commodity derivatives. To enable participation of institutional investors in commodity derivatives market, the regulator has made necessary amendments in the custodian regulations so as to provide for requisite custodial services. The responsibility of custodians will not be limited to holding of securities but would also include holding of goods. The move is aimed at enabling the participation of institutional investors such as mutual funds and portfolio managers in the commodity derivatives market.