Stock exchanges, which were thus far competing among themselves in the financial markets space, are now turning aggressive in commodity derivatives as well. The two major bourses, the Bombay Stock Exchange and National Stock Exchange, launched commodity derivatives only last October. But within a matter of six months, they are now looking at several untapped opportunities in agri-commodities, while planning to enter non-agri commodities, such as metal contracts as well.
NSE is exploring 8-10 new agri-commodities including eggs, potato, tur and urad. According to sources, potato may come first, as the exchange has established cold storage and other ecosystems. Egg is still at the exploration stage. BSE is exploring around 15 agri commodities including ethanol, tea and coffee. Majority of contracts that these exchanges are looking at are in agri and are not traded on any other online derivative exchange in India. Ethanol futures have takers with sugar mills increasing production, but the regulator has to first permit the product.
Commodity derivative exchanges have been responding to a call made by the Securities and Exchange Board of India (Sebi) to bring in some innovations, and make more and more non-agri contracts deliverable. MCX has already launched three metal contracts and in in the process of starting two more.
In the metal segment, the NSe is working on mega contracts and trading in warrants issued by metal producers. The first of these will be a 25-tonne copper contract, for which the exchange is in talks with major producers who prefer large contracts and wants to hedge their risk. This will be followed by similar contracts in other base metals. NSE is also exploring potato, tur, urad among many other commodities.
Warrants are always marked for delivery and can be sold on the exchange. The MCX copper contract is for five tonnes and is fairly liquid. Bringing liquidity will be a challenge. NSE is also working on India gold good delivery norms to lure domestically refined gold for delivery on its platform.
So far, NSE has not been able to do much in terms of volume, while BSE has seen good interest in its agri contracts. A BSE spokesperson said the exchange plans deliverable contracts in base metals such as aluminium, lead, nickel, zinc and deliverable silver kilo bar contracts. Silver kilo bar has gteh potential of attracting several retail investors.
Egg is an interesting item for futures, but is quite perishable. However, some big poultry firms and large retails chains would prefer to hedge their requirements with egg futures. A source close aware of the development said, “The regulator is insisting on making egg futures settled in delivery.” He said that contract specifications will be crucial for success of of the product, which has vibrant spot market. Poultries can sell in their future produce and big retail chains, traders who have access to cold storages to stock egg powder, and other product makers would be buyers in futures once the contract is actually launched.
Other commodities that are not traded on any other exchange, according to the BSE spokesperson, include ginger, cocoa, potato, almond, betelnuts, coconut oil, tea and coffee. BSE is also planning to launch soya complex, groundnut oil and, if permitted, green products like ethanol. Other contracts under consideration are castor seed, turmeric, chana, maize.