Sebi Weighs Launching Freight Derivatives

Introduction of derivatives on freight to help industry hedge price risks, believes the regulator

Sebi Weighs Launching Freight Derivatives
Sebi Weighs Launching Freight Derivatives
PTI - 11 February 2021

To introduce new products for development of the commodity market, the Securities and Exchange Board of India (Sebi) is weighing the feasibility of introducing derivatives contracts on freight.

As freight is one of the important cost factors in the commodities market, the regulator says introduction of derivatives on freight whether on rail, road, air or waterways would help the industry hedge its freight-related price risks.

“It is proposed to study the feasibility of introduction of freight derivatives in the commodity derivatives market,” Sebi says in its annual report for 2019-20.

To prevent fragmentation of liquidity among various stock exchanges in the commodities segment and to develop and deepen the commodity derivatives markets, Sebi will explore a proposal to allow only unique sets of commodities to be traded at each exchange.

Multiple exchanges are now permitted to launch contracts on the same commodity in order to create competition and give choice to investors.

The watchdog says it will review the list of 91 commodities notified by the government for trading on the exchange platform. In July, Sebi General Manager (Commodity Segment) Chhavi Kapoor had said that the government list of 91 notified commodities on which exchanges can launch commodities for trading, cannot be “sacrosanct” and the exchanges should look at new products learning from the COVID-19 crisis.

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