A committee nominated by the Securities and Exchange Board of India has recommended allowing stock brokers to participate in the commodities markets, and letting stock exchanges share their surplus infrastructure with commodity exchanges or, alternatively, set up subsidiaries to function as commodity exchanges.

The KR Ramamoorthy Committee has also suggested amendments to the Securities Contract (Regulations) Rules to give effect to these proposals.

The recommendations are important because India is now set to fully integrate its market system. With futures trading in 81 commodities allowed last year and derivatives trading in electricity, freight and commodity indices likely to be permitted soon, this latest permission is expected to provide a larger universe of derivatives to stock brokers.

By some estimates, India's commodity futures market has the potential to surpass the stock market's turnover by over 10 times. The Sebi panel felt that allowing stock brokers to trade in commodity futures would infuse competition, boost trading volumes and, in turn, provide greater liquidity to the market.

The Centre has been taking major steps to enhance the role of futures as a major risk-containment tool in the commodities market.

The Ramamoorthy Committee has suggested that entry by stock brokers into the commodity futures market should be through a separate legal entity, either as a subsidiary or otherwise.

This, the committee says, is necessary because the commodities markets are regulated separately by the Forward Market Commission. Such an entity should conform the commission's norms on capital adequacy, net worth, membership fee and margins.

The committee took note of the fact that the Securities Contracts (Regulation) Rules, 1957, forbid a person to be elected as a member of a stock exchange if he is engaged as principal or employee in any business other than that of securities, except as a broker or agent not involving personal financial liability.

The committee recommended that this provision be removed or amended to facilitate stock brokers' participation in commodity futures.