Lok Sabha Question No. 1836 (UNSTARRED), answered on 2018-03-06
Subject: Option Trading in Guarseed
Ministry: AGRICULTURE AND FARMERS WELFARE
Asked by: J. JAYASINGH THIYAGARAJ NATTERJEE

## GOVERNMENT OF INDIA MINISTRY OF AGRICULTURE AND FARMERS WELFARE DEPARTMENT OF AGRICULTURE, COOPERATION AND FARMERS WELFARE

## LOK  SABHA UNSTARRED QUESTION NO.1836

TO BE ANSWERED ON THE  6 TH  MARCH, 2018

## OPTION TRADING IN GUARSEED

1836.  SHRI J.J.T. NATTERJEE:

Will  the  Minister  of  AGRICULTURE  AND  FARMERS  WELFARE      ‡ãðŠãäÓã कयाण ½ãâ¨ããè be pleased to state:

एवं  कसान

- (a) whether the  Government  recently  launched  first  agricultural-commodity  options trading in Guarseed;
- (b) if so, the details thereof;
- (c) whether this is designed as hedge for farmers to safeguard against price risks;
- (d) if so, the details thereof;
- (e) whether the Government is planning the same mechanism for other crops too; and
- (f) if so, the details thereof?

## ANSWER

MINISTER OF  STATE IN THE  MINISTRY OF  AGRICULTURE AND  FARMERS  WELFARE

‡ãðŠãäÓã एवं कसान कयाण ½ãâ¨ããÊã¾ã ½ãñâ Àã·¾ã ½ãâ¨ããè ( SHRI GAJENDRA SINGH SHEKHAWAT)

- (a) & (b): Yes, Madam. The National Commodity and Derivatives Exchange Limited, Mumbai (NCDEX)  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.

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

10 MT futures, vide its application dated August 7, 2017 and SEBI has approved the same on September 11, 2017.

Contd….2/-

-2-

(c) & (d): Options  are  derivatives  contracts  in  which  buyer  of  an  options  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/Farmers  Producer  Organisations  (FPOs)  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  time  of  expiry,  the Farmers/FPO perceives  that  the  exercise  price  of  option  is  lower  than  the  prevailing market prices 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 chose not to exercise the option.

(e) & (f): 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 commodities  are  permissible,  subject  to  exchanges  applying  to  SEBI  for  more  such commodities which meets the eligibility criteria prescribed vide SEBI circular dated June 13, 2017.

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