Sebi issues draft norms for commodity indices

Sebi Wednesday issued draft norms for commodity indices, proposing a maximum weightage of 20 per cent for a constituent.

Besides, the watchdog has proposed rules for product design for future on the indices as part of larger efforts to deepen the participation of institutions in the derivatives segment.

Only contracts that are compliant with certain conditions would be allowed to be part of the indices. The contracts should have traded for at least 90 per cent of trading days in last 12 months and they should have a minimum average daily turnover. The turnover should be at least Rs 75 crore for agricultural and agri-processed commodities, and Rs 500 crore for all other commodities, as per the draft norms.

Before re-balancing an index, the future contracts concerned should have been trading in the particular exchange for at least 12 months.

Regarding weightage, any constituent in index would have a maximum weightage at 20 per cent and minimum at 1 per cent. The weightage of the index constituents would be periodically selected and re-balanced.

Besides, the index changes would be implemented only after market hours.

For product design of futures on index, the regulator said initially tenor of the contracts can be six months with a contract size of at least Rs 5 lakh.

Trading hours would be in line with the trading hours for underlying futures, the Securities and Exchange Board of India (Sebi) said.

With respect to position limits, it would be over 1,000 lots or more than 5 per cent of the total open interest in commodity index futures for clients. It would be more than 3,000 lots or above 15 per cent for traders.

Among others, exchanges would be required to make necessary disclosures like top largest participants in index derivatives to the public.

The draft norms are in line with the recommendations made by the Commodity Derivatives Advisory Committee (CDAC). The regulator has sought comments from the stakeholders on these norms till February 16.