Coming, new commodity derivative products

New derivative products in the commodity markets are likely to be launched by the Securities and Exchange Board of India in the coming months.

Three sub-working groups of the market regulator are looking at various issues relating to commodity derivatives – polling of prices, option limit and eligibility criteria for commodities to qualify for future trading. The groups are expected to submit their reports shortly.

“Once they submit their report, we will hold a meeting and look at possible options,” said NITI Aayog member Ramesh Chand, who also heads SEBI’s Commodity Market Advisory Committee and is currrently working on the issue.

Budgetary pitch

As part of the government’s financial sector reform agenda, Finance Minister Arun Jaitley had in the 2016-17 Budget announced that new derivative products will be developed by SEBI in the commodity derivatives market.

Noting that commodities have certain unique features – there is no “heterogeneity in prices” – Chand said the working group on polling of prices is looking at issues relating to what price and market for a commodity should be taken up on any particular day.

“Even during the same day, there is a lot of variation in the price of a single commodity across various markets. This is unlike metals like gold, where prices are uniform, based on the purity. So the question is whether the heterogeneity is due to business, demand and supply or beca-use the lots are different.”

Similarly, the working group on option limit is examining how much futures trading, compared to the physical volume of marketed commodities, be allowed for a trader.

SEBI, which also regulates the commodities market after the Forward Markets Commission’s merger with it last year, had refrained from introducing any new products then.