Stocks

SEBI allows futures trading in commodity indices

Suresh P Iyengar Mumbai | Updated on June 18, 2019 Published on June 18, 2019

Small step towards giant leap for commodity market reform: ICEX chief

SEBI has allowed exchanges to launch futures trading in commodity indices. The move will further facilitate mutual fund and institutional participation in commodity exchanges.

Bourses willing to start commodity indices futures trading has to submit last three years data of the index constructed along with data on monthly volatility, roll-over yield for the month and monthly return while seeking approval from SEBI, the regulator said in a statement on Tuesday.

The trading hours of index futures will be in line with that of index constituents’ futures trading. However, on expiry day, the index futures contract will expire at 5 pm. The contract size should be at least ₹5 lakh and maximum tenor of the contracts will be 12 months. Stock exchanges will decide on the number of contracts, duration of contracts and launch calendar as per market requirements, said SEBI.

Sanjit Prasad, MD and CEO of Indian Commodity Exchange (ICEX), said permitting commodity exchange to launch futures on commodity indices is a small step towards a giant leap for commodity market reform which is in line with the transformation witnessed in the equity market.

Limits

Client-level limit will be 5 per cent of the total open interest in the index futures or 1,000 lots, while for trading members it will be 15 per cent of the total open interest in the index or 10,000 lots.

Exchanges will decide on the daily price limit for commodity index futures based on historical price movement of the indices. The final settlement of the index futures will be done in cash at the price arrived at based on volume weightage and average price of the constituents of the underlying index between 4 pm and 5 pm on the expiry day.

Exchanges have to ensure that indices on which futures trading is being launched are compliant with IOSCO principles for financial benchmarks and not susceptible to manipulation. Exchanges should make necessary disclosures such as open interest of top-10 largest participants in index futures and details of their combined open interest in underlying constituents, besides augmenting their monitoring and surveillance capacity.

The constituents of the commodity index should have futures contracts that are in existence on the exchange for at least previous 12 months and are traded for at least 90 per cent of the trading days during the previous twelve months. The average daily turnover of the constituent futures contracts during the previous 12 months should be at least ₹75 crore for agricultural and agri-processed commodities and ₹500 crore for all other commodities.

Constituents having at least 80 per cent combined weightage in the index have to meet the average daily turnover criteria and constituents not meeting the turnover criteria will not have weightage of over 15 per cent in the index. However, SEBI said the turnover criteria will not be applicable for sectoral indices subject to exchanges ensuring that constituent futures have adequate liquidity.

In order to ensure that no single commodity dominates an index, maximum weightage for any index constituent in a composite index shall be capped at 30 per cent and minimum weightage shall be at least 1 per cent.

Published on June 18, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.