Regulator Allows Introduction of New Options Contracts in Commodities

regulator-allows-introduction-of-new-options-contracts-in-commoditiesThe Exchange Board and Securities of India allow introducing options of contracts in the commodity derivatives market. Now, only futures contracts are traded in the commodity segment.

The new introduction of commodity derivatives products is a subject of deliberation, informed a circular. The circular specified that the products would support overall development in the derivatives commodity market, thereby attracting the participation of a broad base, facilitating hedging, enhancing liquidity and bringing more depth to the market.

Based on the Commodity Derivatives Advisory Committee (CDAC), the recommendations has been decided that commodity derivatives exchanges may be permitted to introduce trading in options, it added.

The need for options contracts was a long-standing demand in the commodity market participants. SEBI took over last year in September as the commodity derivatives regulator and said that newer players and products in the commodity segment would be permitted in a phased manner.

“Options are a long-pending demand and now it is been permitted, SEBI sent a clear signal to these markets to make the new entrees hedger-and user-friendly,” said Head of Commodities & Currencies, Kishor Narne, Motilal Oswal Commodities. “Options will certainly promote participation by reducing costs and risk of hedging by corporates,” he said.

Options introductions may also lead to increased participation from speculators and investors, thereby to better discovery of price and good health of the markets.

The commodity derivative space is dominated by the National Commodity & Derivatives Exchange Limited (NCDEX) and Multi-Commodity Exchange of India (MCX). MCX, to have over 90% dominance in metals and energy commodities as market share with NCDEX creating a niche relating to the agri-commodity space.