Commodity options turnover fell 66% as traders switched to equities: Sebi

Experts suggest more awareness is needed to bring new participants to this segment

The Multi Commodity Exchange of India (MCX), India’s largest commodity derivatives trading platform that enjoys nearly 90 per cent of market share, and National Commodities and Derivatives Exchange (NCDEX) have witnessed a 66 per cent decline in their turnover during the last two months in the recently launched ‘options’ segment as traders switched to equity markets for assured returns.

Markets regulator Securities and Exchange Board of India (Sebi) said in its November bulletin released on Monday: “The turnover of all the options contracts decreased by 66.4 per cent from Rs 466.24 billion in September 2018 to Rs 156.45 billion in October. This was mainly due to a fall in turnover of bullion ‘options’ in October.”

However, MCX volumes have increased for crude oil options.

MCX offers ‘options’ trading in a number of non-agri commodities including gold, silver, crude oil and copper. Apart from MCX, the National Commodity & Derivatives Exchange (NCDEX) offers ‘options’ trading in guar seed that saw a lack-lustre performance since its launch about a year ago.
 

Interestingly, total turnover (futures and options) at MCX increased by 5.3 per cent during October to Rs 6.25 trillion, compared to the total turnover of Rs 5.9 trillion recorded in September 2018. Options contracts contributed 2.5 per cent to the total turnover of the exchange.

MCX launched ‘options’ trading in gold in October 2017 after Sebi's approval. Being a new product in the commodity derivatives segment on the trading platform, options received a good initial response with a steady growth in volumes. With the aid of liquidity enhancement scheme (LES) to brokers, options contracts had witnessed a sudden spurt in turnover in September 2018 to Rs 465.61 billion.

An email sent to MCX seeking reasons for the decline in turnover over ‘options’ contracts turnover did not elicit any response.

Jayant Manglik, President, Religare Securities, said, “This is the new category which will grow with time as awareness and opportunities increase. The ‘options’ segment would grow steadily and permanently from here.”

Experts also suggest that more awareness is needed to bring new participants to this segment.

During the last two months, equity markets in India have seen a sharp volatility amid the benchmark Sensex and Nifty gaining to set new records followed by a cilimb down of nearly 10 per cent from the peak. In a short span of two to three weeks, however, both Sensex and Nifty recovered nearly half of their falls.