 "Futures in commodity indices likely by FY20 end, with MCX as first mover")
Futures trading in commodity indices might happen in 2020, probably in the quarter ending March, sources said. At present, only single-commodity futures are permitted on Indian exchanges.
Institutional and financial investors prefer indices to hedge their risks, rather than taking positions in single-commodity futures.
Edelweiss Equity Research had quoted the top management of the Multi Commodity Exchange (MCX) as telling analysts that they were in the process of preparing their proposal in this regard, likely to be sent to the regulator by the end of September.
Currently, there are three indices (composite, bullion and base metal) provided by MCX, with Thomson Reuters. The company is maintaining these for five years. From October, it would start providing tick-by-tick data.
“The management is confident of getting approval by FY20. Pricing of the indices would be decided later, after testing the market response,” sources said.
The National Commodity and Derivatices Exchnage (NCDEX), also eligible for launching futures in indices, is in the process of finalising a partner for this. It has designed a composite agricultural commodities index, with a few sectoral indices. The plan is to begin with an agri index.
Globally, derivatives in indices is a major volume item. As compared to futures, options on indices generate higher volume. Financial investors wanting to diversify risk in other asset classes do hedge in commodity indices.
Commodity indices find more traction when volatility increases. According to the markets regulator's report for 2018-19, published a few days earlier, both the MCX and NCDEX main indices have seen an increase in volatility. The annualised volatility for MCX COMDEX (a composite index representing agriculture, metals and energy) in 2018-19 was 13.4 per cent, compared to 9.8 per cent a year before.
As regards the NKrishi Index of NCDEX, representing agri commodities and where the exchange has a dominance, the annualised volatility increased to 12.9 per cent, compared to 10.9 per cent in 2017-18.
Institutional and financial investors prefer indices to hedge their risks, rather than taking positions in single-commodity futures.
Edelweiss Equity Research had quoted the top management of the Multi Commodity Exchange (MCX) as telling analysts that they were in the process of preparing their proposal in this regard, likely to be sent to the regulator by the end of September.
Currently, there are three indices (composite, bullion and base metal) provided by MCX, with Thomson Reuters. The company is maintaining these for five years. From October, it would start providing tick-by-tick data.
“The management is confident of getting approval by FY20. Pricing of the indices would be decided later, after testing the market response,” sources said.
The National Commodity and Derivatices Exchnage (NCDEX), also eligible for launching futures in indices, is in the process of finalising a partner for this. It has designed a composite agricultural commodities index, with a few sectoral indices. The plan is to begin with an agri index.
Globally, derivatives in indices is a major volume item. As compared to futures, options on indices generate higher volume. Financial investors wanting to diversify risk in other asset classes do hedge in commodity indices.
Commodity indices find more traction when volatility increases. According to the markets regulator's report for 2018-19, published a few days earlier, both the MCX and NCDEX main indices have seen an increase in volatility. The annualised volatility for MCX COMDEX (a composite index representing agriculture, metals and energy) in 2018-19 was 13.4 per cent, compared to 9.8 per cent a year before.
As regards the NKrishi Index of NCDEX, representing agri commodities and where the exchange has a dominance, the annualised volatility increased to 12.9 per cent, compared to 10.9 per cent in 2017-18.
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