Sebi permits options in commodity future
DH News Service, Agencies, Mumbai, Jun 13 2017, 21:59 IST
In a long awaited move, market regulator Securities and Exchange Board of India (Sebi) has allowed option trading in commodity futures for deepening the market but permitted each exchange to launch these contracts for only one product initially.
It is decided that initially, on a pilot basis each exchange shall be allowed to launch options on futures of only one commodity that meets the criteria, Sebi said.
The underlying futures contracts on the corresponding commodity shall be amongst the top five futures contracts in terms of total trading turnover value of previous 12 months and the average daily turnover of underlying futures contracts of the corresponding commodity during the previous 12 months, shall be atleast Rs 200 crore for agricultural and agri-processed commodities and Rs 1,000 crore for other commodities, it added.
Exchanges have been demanding for long that options trading in commodities be allowed. While Sebi had agreed to permit options trading last year itself, some legal requirements were holding back the move.
After hectic discussions, Sebi finally decided to allow options trading on futures contract of commodities rather than any commodity directly being allowed as an underlying security. So far, only futures trading was permitted on commodity bourses.
Sebi has also stipulated necessary guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures.
Trading hours shall be same as those of corresponding futures contract and expirty day of options contracts shall be decided by exchange based upon period of high liquidity of underlying futures contracts and shall be part of option contract specifications, the regulaor said, adding that the European style options shall be permitted to start with on the exchanges.
SEBI has also advised exchanges to take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of option trading in commodity futures and to bring the provisions of this circular to the notice of the members of the exchang and also to disseminate the same on their website.
It is decided that initially, on a pilot basis each exchange shall be allowed to launch options on futures of only one commodity that meets the criteria, Sebi said.
The underlying futures contracts on the corresponding commodity shall be amongst the top five futures contracts in terms of total trading turnover value of previous 12 months and the average daily turnover of underlying futures contracts of the corresponding commodity during the previous 12 months, shall be atleast Rs 200 crore for agricultural and agri-processed commodities and Rs 1,000 crore for other commodities, it added.
Exchanges have been demanding for long that options trading in commodities be allowed. While Sebi had agreed to permit options trading last year itself, some legal requirements were holding back the move.
After hectic discussions, Sebi finally decided to allow options trading on futures contract of commodities rather than any commodity directly being allowed as an underlying security. So far, only futures trading was permitted on commodity bourses.
Sebi has also stipulated necessary guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures.
Trading hours shall be same as those of corresponding futures contract and expirty day of options contracts shall be decided by exchange based upon period of high liquidity of underlying futures contracts and shall be part of option contract specifications, the regulaor said, adding that the European style options shall be permitted to start with on the exchanges.
SEBI has also advised exchanges to take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of option trading in commodity futures and to bring the provisions of this circular to the notice of the members of the exchang and also to disseminate the same on their website.
