NEW INSTRUMENTS Sebi weighs letting commo options devolve into futures contracts
The Securities and Exchange Board of India (Sebi), which in September permitted commodity exchanges to introduce options on commodities, is considering settlement of the new instrument by letting it devolve into a futures contract as is the practice on CME-CBOT, Euronext and London Metal Exchange.
Sebi has sought public comments on the proposal until January 31, 2017. The other option of allowing options to be cash settled, especially in agriculture commodities, was precluded due to lack of transparent and uniform spot prices being available. Non-agri futures contract mirror those traded on international exchanges.For example, gold and silver futures mimic contracts on Comex, crude futures on Nymex crude, etc.
Therefore, price discovery in them is transparent and robust.
Since most agri futures contracts end in compulsory delivery , options on them will be deliverable. In the non-agri space, gold and silver result in compulsory delivery. Base metals and energy contracts are cash settled.
For the settlement of options on futures to come through, Sebi will have to amend the definition of options to allow an option to be settled on futures contract. Other relevant changes to the definition of national commodity exchange will also have to be made.
It is widely anticipated by commodity exchange stakeholders that the market regulator will initially allow options in one agri and one non-agri commodity like gold and soyabean.
The Economic Times New Delhi,20th January 2016
Sebi has sought public comments on the proposal until January 31, 2017. The other option of allowing options to be cash settled, especially in agriculture commodities, was precluded due to lack of transparent and uniform spot prices being available. Non-agri futures contract mirror those traded on international exchanges.For example, gold and silver futures mimic contracts on Comex, crude futures on Nymex crude, etc.
Therefore, price discovery in them is transparent and robust.
Since most agri futures contracts end in compulsory delivery , options on them will be deliverable. In the non-agri space, gold and silver result in compulsory delivery. Base metals and energy contracts are cash settled.
For the settlement of options on futures to come through, Sebi will have to amend the definition of options to allow an option to be settled on futures contract. Other relevant changes to the definition of national commodity exchange will also have to be made.
It is widely anticipated by commodity exchange stakeholders that the market regulator will initially allow options in one agri and one non-agri commodity like gold and soyabean.
The Economic Times New Delhi,20th January 2016
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