The Multi-Commodity Exchange of India Ltd plans to start the country’s first options trading as early as next month by allowing investors to transact in gold, the most-traded precious metal on the bourse.
“We’re prepared for options trading and are waiting to see the fine print of the guidelines” from the regulator, PK Singhal, president of MCX, as the exchange is known, said in a phone interview. “Gold tops the list,” which also includes copper, crude oil, palm oil and cotton, he said.
The Securities & Exchange Board of India in September allowed options trading in one farm and one non-farm commodity, and said volumes and liquidity would decide which derivatives contracts would be permitted. Gold and silver accounted for 35% of the Rs62tn ($922bn) turnover on March 31, 2015, data from the regulator show. Sebi is currently talking to the bourses to finalise the product structure, according to the National Commodity & Derivatives Exchange of
India Ltd.
“We’re expecting Sebi to come out with risk-management guidelines in few weeks,” Samir Shah, managing director of the Mumbai-based NCDEX, the second-largest bourse, said by phone. “We are looking at soybean, soyoil and guarseed, our most liquid commodities, as potential candidates.”
A Sebi spokesman didn’t immediately respond to an e-mail and a phone call seeking comment.
Trading in options is a way to enhance liquidity and bring more depth to the commodity markets, the regulator said while allowing trade in the segment. Sebi is talking to other regulators to allow banks and mutual funds to trade in the commodity markets, chairman UK Sinha told reporters in September. MCX shares jumped 5.6%, most in a month, to Rs1,322 at the close. The stock has rallied 43% this year. Allowing mutual funds to trade commodities will lead to an increase in volumes, said AK Prabhakar, head of research at IDBI Capital Market Services Ltd.
A $920mn payment default at a spot commodities bourse in 2013 saw trading in futures markets decline after investors lost confidence in the market, prompting India to bring the commodity markets regulator, Forward Markets Commission, under the ambit of the capital markets regulator, Sebi.