CDAC okays 11 new commodities for future trading

Suresh P Iyengar Mumbai | Updated on February 05, 2021

Futures trading soon on weather, Aviation Turbine Fuel, freight, cement, platinum, manganese, apple, cashew nut, garlic, tobacco and white butter

The Commodity Derivatives Advisory Committee (CDAC) has approved eleven new products for futures trading on the exchange platform.

In a meeting held with the regulator SEBI on Friday, CDAC approved futures trading on weather, Aviation Turbine Fuel, freight, cement, platinum, manganese, apple, cashew nut, garlic, tobacco and white butter.

The exchanges have to now make their choice from the list of new commodities and move SEBI for approval before launching them on their platform, sources said.

Earlier, CDAC had short-listed 30 new products but had to drop out many due to lack of standardisation and low production volume.

Forward contracts

The members of the CDAC also wanted SEBI to allow re-launch of forward contract with proper checks and balances. Forward contracts was banned from the exchange platform in 2016 after the infamous scam on the National Spot Exchange platform.

Though SEBI still have apprehension on allowing trade in forward contracts, CDAC members felt that it will help Farmer Producers Organisation from incurring unnecessary expense on maintaining mark-to-market margins on a daily basis.

Unlike futures, forward contracts are a non-standardised deal entered between two parties to buy or sell a commodity at a specified future date at a price agreed on at the time of executing the contract, making it a type of derivative instrument.

Gold spot exchange

CDAC also welcomed SEBI as the regulator of the proposed gold spot exchange and felt that it will help consumers to accumulate gold in demat form in a more transparent pricing mechanism.

SEBI is expected to come with detailed guidelines on gold exchange soon, sources said.

Concerns were also raised on the dwindling institutional participation on commodity exchanges. After a detailed presentation on listed companies hedging position overseas, it was decided to have a one-on-one meeting with corporates to find out their difficulty in hedging on the domestic exchanges, he said.

Listed companies hedge their exposure in energy and base metal abroad rather than on the domestic exchanges due to high cost and lack of depth in the market.

Despite SEBI allowing mutual funds to trade in commodity exchanges few years back, no specific standalone wealth products have been developed by them so far, said a member of CDAC.

Published on February 05, 2021

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