Sebi prepares to allow options trading in commodity bourses

A commodity derivatives contract can have only goods as notified by central govt as underlying

Market regulator Sebi Thursday came out with draft norms that seek to allow options trading in commodity bourses as part of efforts to deepen the nascent commodity derivatives market.

To enable trading instruments relating to commodity derivatives, including options, Sebi has proposed to amend the definition of 'commodity derivatives exchange' and 'national commodity derivatives exchange' and also provisions applicable to such exchanges in the Securities Contracts Regulation.

The regulator has sought comments from public on the proposed amendments till January 31 and final regulation would be put in place after taking into consideration views of all the stakeholders.

Under the current norms, commodity derivatives exchanges cannot deal in any other product except for commodity derivatives. An option contract with commodity futures as underlying and settled by devolving into commodity futures is not eligible for trading on such exchanges.

Besides, a commodity derivatives contract can have only goods as notified by the central government as underlying.

Accordingly, Sebi has proposed to make amendments in the current regulation, which has been a long-pending demands from the exchanges, investors and market participants.

As per the proposed definition, commodity derivatives exchange means a recognised stock exchange which assists, regulates or controls the business of buying, selling or dealing only in commodity derivatives and such other instruments relating to commodity derivatives including options.

National commodity derivatives exchange has an electronic trading platform and is permitted to assist, regulate or control the business of dealing in derivatives and such other instruments relating to commodity derivatives including options on all commodities as notified by the Central Government from time to time, as per the proposed definition.

"No commodity derivatives exchange shall engage in any activity other than that of assisting, regulating or controlling the business of buying, selling or dealing in commodity derivatives and such other instruments relating to commodity derivatives including options, except with the prior permission of the board," Sebi has proposed.