The National Stock Exchange will launch two new cash settled energy futures contracts on WTI Crude Oil and Natural Gas on Monday.
With the new launch, the country’s largest exchange intends to enhance the product offering and draw liquidity from MCX, which already provides trades in similar contracts on its platform.
In a bid woo investors, NSE has waived off transaction charges in both these contracts till October-end.
Initially, six monthly expiry contracts of WTI Crude and three of natural gas will be available for trading.
The specifications of these new contracts will be almost similar to that of MCX to facilitate investors shift to NSE.
The exchange targets investment in the new commodity contracts from large foreign portfolio investors and high-networth investors who are already trading in the NSE equity derivatives segment.
All FPI categories (I and II), including individuals, family offices, and corporate FPIs, are permitted to trade in the commodity segment. Direct Market Access and algo trading facility will also be available for FPIs.
In fact, the spread trade between WTI Crude and Brent crude (already available in NSE) is most popular among investors.
SEBI attempts to attract foreign participation in non-agriculture commodity derivative segments have been less successful despite easing norms.
However, NSE feels the ease of collateral fungibility across other NSE Segments Settlement Guarantee by NSE Clearing allows investors to use the unutilised margin in the equity segment in the new commodity contracts trade, which attracts trading interest between 5 pm to 11.30 pm after the equity market shuts at 3.30 pm.
Earlier, NSE had signed a data licensing agreement with CME Group allowing NSE to list, trade, and settle rupee denominated NYMEX WTI Crude Oil and Natural Gas derivatives contracts on its platform.
If NSE succeeds in attracting investors in new contracts, it will also pave way to boost liquidity in other commodities traded on the exchange.
NSE hopes that these contracts provide the market participants with an efficient avenue to hedge their price risk and meet their trading objectives.
The NSE WTI Crude Oil and Natural Gas contracts will be settled based on the NYMEX front-month contract’s settlement price.
Crude Oil Derivatives (Brent and WTI) are the highest traded products in the commodities market space.