Commodity Options

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The securities and exchange board of India has today approved trading in commodity options. While actual trading in options will take some time to start as first finance ministry will have to amend the relevant rules which can be done by issuing a notification and the regulator board has found way out which will not require to go to parliament. The existing SCR act gives all powers to the Sebi to permit options. However options settlement will be much more complex than equity options because in commodities, ''options will devolve or expire in futures.''Expiry of option, as the Chairman, Ajy Tyagi stated, "options will be in futures of the same commodity and not cash settlement like in equities." However as he said the details for this are being worked out but according to sources, once an option expires in futures relevant margins applicable to futures will also apply to options. On expiry if buyer of the option decides to continue his position, he will have to pay standard margins ...

However, regulator is treating issue with caution; experts suggest letting banks act as aggregators