Lok Sabha Question No. 103 (UNSTARRED), answered on 2018-02-02
Subject: Agri-Commodity Options Contracts in Guar Seed
Ministry: FINANCE
Asked by: RANGASWAMY DHRUVANARAYANA, SUNIL KUMAR SINGH

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 103

ANSWERED ON 2 nd  FEBRUARY, 2018/MAGHA 13, 1939(SAKA)

## AGRI-COMMODITY OPTIONS CONTRACTS IN GUAR SEED

## 103. SHRI R. DHRUVA NARAYAN: SHRI SUNIL KUMAR SINGH:

Will the Minister of FINANCE be pleased to state:

- (a) whether the Government has launched country's First Agri-commodity Options Contracts in Guar seed;
- (b) if so, the details thereof and the manner in which it is going to benefit the farmers;
- (c) whether the Government is planning to include other Agri-commodity under this in the near future; and
- (d) if so, the details of the Agri-commodities that are going to be included in it?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI P. RADHAKRISHNAN)

(a) Yes. The National Commodity and Derivatives Exchange Limited (NCDEX), Mumbai has launched the Options on Guar Seed Futures on January 14, 2018,  as approved by Securities and Exchange  Board  of  India  (SEBI).    This  is  the  first  Options  product  on  agricultural  commodity futures allowed for trading in India.

(b) SEBI, vide circular dated June 13, 2017, issued guidelines with regard to eligibility criteria for selection of underlying commodity futures for launch of option contracts, product design and risk management framework to be adopted for trading in options on commodity futures. Based on the guidelines, NCDEX applied for options on Guar Seed 10MT futures, vide its application dated August 7, 2017 and SEBI approved the same on September 11, 2017.

Options are derivatives contracts in which the buyer of an Option has the right, but not the obligation,  to  buy  or  sell  the  underlying  at  a  pre-decided  price  (exercise  price)  by  paying  some premium. At the time of expiry, if the exercise price of option is not perceived as favourable by buyer of an Option, he may choose not to exercise the option contract and thus will lose only the premium amount paid.

Farmers/Farmer  Producer  Organisations  (FPO)  may  utilise  this  product  by  buying  a  Put Option, thereby hedging their sell price i.e. fixing sell price of their produce by paying a premium without any downside risk. However, if at the time of expiry, the Farmers/FPOs perceive that the exercise price of option is lower than the prevailing market price or, if they perceive that they may not  be  able  to  deliver  the  corresponding  quantity  of  commodity  for  the  exercise  of  the  option contract they had entered into, they may choose not to exercise the option.

(c)  &  (d)      Currently,  SEBI  has  permitted  Options  contracts  in  only  one  commodity  each  in  the category  of  agricultural  commodity  futures  (Guar  Seed)  and  in  the  category  of  non-agricultural futures  (Gold).  However,  options  on  additional  agricultural  commodity  futures  are  permissible, subject  to  exchanges  applying  to  SEBI  for  more  such  commodities  which  meet  the  eligibility criteria prescribed vide SEBI circular dated June 13, 2017.

******