Sebi to deepen commodity derivatives mkt; permits options

Sebi today permitted options trading in commodity derivatives to enhance liquidity even as the regulator indicated that it might take longer before deciding on allowing institutional investors into commodities segment.
Describing the decision on options trading as a "very big step towards further deepening the commodities derivatives market", Sebi Chairman Ajay Tyagi said it would be implemented quickly.
These decisions were taken at the Sebi's board meeting, first one to be chaired by Tyagi, here.
"I can only say it will be done quickly... I don't want to give timeframe but this certainly is priority for commodity derivatives market and high priority for us," Tyagi told reporters after the board meeting.

Detailed guidelines would be issued for trading in 'option' on commodity derivatives exchanges.
When asked about allowing banks in commodity markets, Tyagi said the regulator has not arrived at any decision in this regard.

"We have not arrived at any decision for allowing banks in commodities. We have requested the RBI to allow banks to begin with clearing members and brokerages before directly participating in the commodities," Tyagi said.
These are under deliberations but the larger issue is of having synergy with spot and derivatives markets is something which needs to be addressed before permitting institutional investors, the Sebi chief said.

"I am not saying institutional participation will come only after that (synergy in spot and commodities derivative markets)... I am saying substantial progress will be made only after that," he added.
To enable the commodity derivatives exchanges to organise trading of options, the Securities Contract Securities Contract (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 would be amended.
Meanwhile, Tyagi said spot market trading is in state list and there are legal issues. So, it is bit of a complicated issue, he added.
Sebi is in discussions with other regulators and examining whether alternative investment funds and mutual funds can participate in the commodities derivatives.

Further, he said since the underlying asset is not regulated so everyone is cautious in investing in it.
Commenting on Sebi's move of allowing options in commodities markets, Angel Broking Head Advisory Amar Singh said it is a great and positive step in the right direction, which would go a long way in enhancing the quality of the commodity markets.
"World over, commodity options are very much used by hedgers, to protect themselves against volatility and this step will help Indian hedgers as well, apart from offering various strategies for hedgers, investors and traders alike," he added.
MCX Managing Director and CEO Mrugank Paranjape said options definitely would complement the existing futures contracts and further bolsters price discovery process in Indian commodity market".

Echoing views, an NCDEX spokesperson said options are a much better risk management for a large number of participants including farmers, who have started using futures actively as well.
"The combination of options and futures can give market participants the leverage of futures with the safety of options. With addition of liquidity through options, various associated benefits such as lowering of impact cost, improved market stability, improved price discovery etc. Will also be seen," the official said.
On unified licence, he said that the move would bring out many synergies and would benefit the market at large.
"It enhances economic efficiency in meeting operational and compliance obligations at the member level, potentially resulting in ease of doing business. The integration would also help in widening market penetration through greater financial inclusion for stakeholders across all market segments," he added.

In case of unified licensing for brokers, the NCDEX official said that it will not only increase ease of doing business and allow investors to utilise their funds in a more efficient manner, but also result in a big reduction in establishment cost for brokers.