Sebi allows options trading in commodities as govt expands derivatives list

Market regulator Securities and Exchange Board of India (Sebi) on Wednesday announced that options trading will be allowed on commodity derivatives markets, even as the government added six new products, including eggs, to the list of commodities on which derivative contracts can be launched and traded.

So far, only futures contracts are permitted in the commodity derivatives trading space.

The decision to expand the list of notified commodities and to allow options trading comes nearly a year after merger of erstwhile commodities market regulator FMC with Sebi.

The new items in which forward and options trading will be allowed include  diamond, tea, eggs, cocoa, pig iron and brass. This takes the total number of permitted commodities on the notified list to 91.

Sebi said the introduction of new commodity derivatives products will be conducive for the overall development of the commodity derivatives market, helping to attract broad base participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market.

In his budget proposals for the financial year 2016-17, finance minister Arun Jaitley had announced that ''new derivative products will be developed by Sebi in the commodity derivatives market''.

Sebi has constituted a committee of experts known as Commodity Derivatives Advisory Committee (CDAC) to advise it on matters concerning effective regulation and development of the commodity derivatives market. The recommendations made by the CDAC inter alia, on the subject of introduction of new products have been considered and it has been decided that Commodity Derivatives Exchanges shall be permitted to introduce trading in 'options', a Sebi circular stated.

The commodity derivatives exchanges willing to start trading in options contracts have been asked to take prior approval of Sebi for which detailed guidelines will be issued in due course.

Simultaneously, the finance ministry provided legal clarity by specifying a list of 91 commodities on which commodity derivative contracts will be permitted under the Securities Contracts Regulation Act 1956 (SCRA).

The commodities so far notified include 17 cereals and pulses, 12 oilseeds and oils, 12 spices, 11 metals, 3 precious metals, 4 plantation products, and 11 energy related products.