With options, commodities traders get a hedging tool

Suresh P Iyengar Mumbai | Updated on January 12, 2018 Published on June 13, 2017


Sebi sets daily turnover limits; move will provide depth to market

Capital and commodity market regulator Sebi has set a minimum average daily turnover limit of ₹200 crore for agriculture and agriculture-processed commodities to be eligible for options trading, and of ₹1,000 crore for other commodities.

To be listed on the options trading platform, both agriculture and non-agriculture commodities should have met the daily turnover criteria for the past 12 months, a Sebi statement said on Tuesday.

This apart, the commodity on which options are traded should be among the top five futures contracts in terms of total trading turnover value for 12 months, it added.

Sebi, which approved options trading in commodity market last September, has aligned commodity market regulations with those of the capital market.

With Sebi now laying the guidelines for the product design and the risk management framework, commodity exchanges have to decide on the commodities for options and secure approval.

Initially, Sebi will allow each of the three exchanges, MCX, NCDEX and NMCE, to launch options trading in one commodity with futures trading on the particular commodity as underlying.

Ajay Kumar Kedia, Director, Kedia Stocks and Commodities, said that going by the Sebi criteria for options, NCDEX may prefer to launch options in soyabean and soya oil, while MCX would prefer gold.

Trading interest in commodities will increase manifold with the launch of options, he added.

Mrugank Paranjape, Managing Director & CEO, MCX, said the Sebi guidelines were drafted after consultations with market participants.

The features relating to the product design will ensure that commodity options will operate on a strong foundation, he added. After consultations with the stakeholders, MCX will decide on the commodity on which the first option product is launched, he said.

An NCDEX statement said the launch of options would boost market participation and it would soon announce the launch of options in a commodity after seeking Sebi approval.

Options trading will make the commodities market robust and efficient. The combination of futures and options can give participants the benefit of price discovery of futures and simpler risk management of options, it said.

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Published on June 13, 2017
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