Brokers Demand SEBI Harmonize Market-Making, Eyeing MCX Commodity Dominance

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AuthorAnanya Iyer|Published at:
Brokers Demand SEBI Harmonize Market-Making, Eyeing MCX Commodity Dominance
Overview

Top brokers, operating under the Association of National Exchanges Members of India (ANMI), have petitioned the capital markets regulator, SEBI, to align market-making rules across equity and commodity derivatives. This strategic proposal aims to inject much-needed liquidity and foster greater competition, potentially challenging Multi Commodity Exchange's (MCX) overwhelming 99% share in India's commodity derivatives market.

Brokers Push for Regulatory Parity in Market Making

Brokers are lobbying the Securities and Exchange Board of India (SEBI) to standardize market-making regulations, a move that could significantly disrupt the entrenched dominance of Multi Commodity Exchange (MCX) in the commodity derivatives arena. The Association of National Exchanges Members of India (ANMI), representing major brokerage firms, formally requested the regulator this Friday to extend equity-style market-making frameworks to commodity contracts.

Current Regulatory Hurdles

Exchanges currently possess the latitude to implement liquidity enhancement schemes (LES), often referred to as market-making, in equity cash segments, irrespective of whether those stocks are already liquid on other exchanges. However, this flexibility does not extend to commodity derivatives. Under existing rules, an exchange cannot offer LES on commodity contracts that are already liquid on an incumbent bourse like MCX, unless MCX itself initiates LES on those specific contracts. This asymmetry restricts potential competition.

The MCX Dominance

The commodity derivatives market in India saw a turnover of ₹95.58 trillion in FY26 through November, a figure substantially smaller than the ₹180.73 trillion recorded in the equity cash market during the same period. Despite this, MCX commands a near-absolute monopoly, holding 99% of the commodity derivatives market share, according to SEBI data. Other exchanges like NCDEX, NSE, and BSE collectively manage the remaining fraction.

Fostering Competition and Liquidity

K. Suresh, national president of ANMI, stated that extending equity-style market-making to commodities would "foster inter-exchange competition and deepen markets for investor benefit." Market-making incentivizes large brokers to provide competitive buy and sell quotes, thereby increasing trading volumes, attracting more participants, and enhancing overall market liquidity. Rajesh Palviya, head of derivatives and technical research at Axis Securities, noted that such a reform could lead to tighter bid-ask spreads, reduce impact costs for traders, and potentially expand the total market pie for all participants.

Unified License Framework Context

This push comes as India operates under a unified exchange license framework, established after the merger of the Forward Markets Commission with SEBI in 2015. This framework allows brokers to offer both equity and commodity trading under a single entity, making regulatory parity in market-making a logical next step for ANMI. Meanwhile, SEBI chairman Tuhin Kanta Pandey has indicated a regulatory focus on deepening the non-farm commodity derivatives segment to encourage institutional participation.

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