The capital and commodity market regulator Securities and Exchange Board of India (Sebi) has allowed Stock Exchanges (SEs) having the commodity segments to introduce futures trading on Indices. Sebi in a circular issued late on Tuesday evening said, the exchanges willing to start trading in futures on commodity indices are allowed to do so, but they need prior approval for launching such contracts.
Exchanges will have to submit at-least past 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. On approval, exchanges shall also publish the above data on their website before launch of the products. Exchanges shall make necessary disclosures such as open interest of top 10 largest participants/group of participants in index futures (both long and short) and the details of their combined open interest in underlying constituents etc., Sebi circular said.
MCX spokesperson responding on the development said: “We welcome the much-awaited guidelines on Commodity Indices by the Regulator. Derivatives on commodity indices will open up a new avenue for risk management and make this segment more accessible to all market stakeholders. Introduction of this new commodity derivatives product will indeed act as a catalyst in attracting broad based participation, enhancing liquidity, bringing in more depth to the commodity derivatives market in India.”
While delivering the union budget for 2016-17, then union finance minister Arun Jaitley had announced that “new derivatives products will be developed by Sebi in the Commodity Derivatives Market. Introduction of new commodity derivatives products has been a subject of deliberation as it is considered to be conducive for the overall development of the commodity derivatives market, attracting broad based participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market.
In this regard, the Commodity Derivatives Advisory Committee (CDAC) of Sebi had also recommended introduction of options, derivatives on commodity indices and at later stage products such as weather and freight derivatives. Sebi has already permitted commodity options in Indian commodity derivatives markets, based on the above recommendation of CDAC.