Open sesame: SEBI unveils options trading in commodities

Our Bureau New Delhi | Updated on January 16, 2018 Published on September 28, 2016


FinMin lists 91 commodities for trading; will be a game-changer for farmers, says NCDEX

Market regulator SEBI on Wednesday allowed commodity derivative exchanges to introduce trading in ‘options’, unveiling a historic step that is expected to deepen the commodities market, expand the product basket and draw new participants.

SEBI’s move was in effect a first-anniversary gift for the commodity derivatives market. Exactly a year ago, it had merged the erstwhile commodities regulator Forward Markets Commission with itself.

Click here to read gazette notification PDF

Currently, the only instrument available in the commodity derivatives market is “futures” on individual commodities. Commodity derivative exchanges looking to start trading in options contracts should take SEBI’s prior approval, for which detailed guidelines will be issued in due course, SEBI said in a circular on Wednesday.

Simultaneously, the Finance Ministry provided legal clarity by specifying a list of 91 commodities on which commodity derivative contracts will be permitted under the Securities Contracts Regulation Act 1956 (SCRA).

The commodities notified include 17 cereals and pulses, 12 oilseeds and oils, 12 spices, 11 metals, 3 precious metals, 4 plantation products, and 11 energy related products.

Finance Minister Arun Jaitley had announced in this year’s Budget that “new derivative products will be developed by SEBI in the commodity derivatives market.”

NCDEX welcomed the decision and highlighted that it will be a “game-charger” for farmers. “It would help them to sell their produce in the derivatives market and get the benefit of price protection in case the price falls below their cost of production and also derive the benefit of any rise in price. Options are also a much better hedging instrument as compared to futures for hedgers,” NCDEX said.

NCDEX said it was fully prepared for the launch of options and had invested in next-generation trading technology, geared towards providing unrivalled levels of performance. “We await detailed guidelines from the regulator in this regard,” the statement added.

Mrugank Paranjape, MD and CEO, MCX, said that introduction of options would deepen and transform the Indian commodity derivatives markets both in terms of products and participants. It will also complement the existing futures contracts and would make Indian commodity derivatives more vibrant and efficient, he said.

“It will provide for inclusive development of the market and encourage cost-effective hedging for participants like farmers and SMEs,” Paranjape added.

Kishor Narne, Head of Commodities and Currencies at Motilal Oswal, said that though the move had come a bit late, SEBI had finally fulfilled its promise to strengthen and grow the commodities markets.

Published on September 28, 2016
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