The Securities Board of Nepal (Sebon) has permitted commodity traders to invest in six types of goods on the commodities exchange: agricultural products, metals, precious metals, mineral oils, edible oils and others.

Agricultural products include 23 goods like cotton, cardamom, chilli, cashew nut, sugarcane, buckwheat, mustard, potato, paddy, ginger, fruit and fruit juice.

Similarly, commodity traders can buy and sell aluminium, copper, lead, nickel, tin, brass, iron and zinc under metals. Precious metals include gold, silver and platinum. Mineral oils permitted to be traded are crude oil, petroleum products, natural gas and heating oil.

Sebon has also permitted commodity traders to invest in coconut, palm, mustard, soybean, sunflower and linseed oils under the edible oils category. Traders can invest in sugar, molasses, tea, coffee, egg and medicinal herb on the commodities exchange.

According to Sebon, the newly released regulation has formally allowed speculative trading in these commodities. The commodities exchange has so far been operating without a legal framework.

The government began work to create a set of rules after irregularities were seen in the commodities exchange a few years ago. Earlier, a study carried out by Sebon had also revealed many malpractices in the sector with more than 80 percent of the investors losing their money after investing in the commodities market.

Following the revelations, Sebon worked to get the Commodities Exchange Market Act 2017 passed by the Legislature-Parliament on July 31. The new regulation is in line with the act, said Sebon Spokesperson Niraj Giri, speaking at a programme on Monday.

With the regulation in place, commodity traders wishing to act on behalf of their clients need to obtain an operating licence from Sebon. So far, 15 companies have been operating as commodity traders after receiving a permit from the Company Registrar Office. These companies have been operating under the Contract Act 2000.

Sebon Director Mukti Shrestha said these companies could continue until their contracts expire, after which they will need to sign a fresh contract. “They cannot sign a new contract to conduct their routine work following the passage of the regulation,” Shrestha said.

According to Sebon, companies involved in speculative trading can now operate in the derivatives market. “Due to the absence of necessary warehouses and related warehouse act, physical transactions are currently not possible,” Shrestha said.

Commodity exchange platforms are required to have a paid-up capital of Rs500 million under the new regulation. They need to provide a full-fledged online trading system to its customers. 

Similarly, warehouse service operators need to have a paid-up capital of Rs150 million while the paid-up capital for clearing houses has been fixed at Rs70 million.

The paid-up capital for investment management services, investment consultants and brokerage services has been fixed at Rs50 million, Rs10 million and Rs5 million respectively.

Sebon Chairman Rewat Bahadur Karki said the new regulation would help bring commodity exchange

activities under the legal framework. “This will ensure safety for investors against malpractices seen in the sector,” Karki said.

Meanwhile, commodity traders have hailed Sebon’s new regulation. “It will remove anomalies and help genuine companies engaged in speculative trading,” said Dhan Kumar Rai, a representative of Future Focus