Lok Sabha Question No. 862 (UNSTARRED), answered on 2018-12-14
Subject: Commodity Derivatives Market
Ministry: FINANCE
Asked by: PONGULETI SRINIVASA REDDY

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO. 862 ANSWERED ON - 14.12.2018/ Agrahayana 23, 1940 (Saka)

## COMMODITY DERIVATIVES MARKET

## 862. SHRI PONGULETI SRINIVASA REDDY

## Will the Minister of FINANCE be pleased to state:

- (a) whether Securities and Exchange Board of India (SEBI) has allowed the introduction of options contracts in the commodity derivatives market, if so, the details thereof;
- (b) whether options would also lead to increase participation from investors and speculators for better price discovery and good health of the markets, if so, the details thereof; and
- (c) whether  the  introduction  of  options  deepened  and  transformed  the  Indian  commodity  derivates markets both in terms of productions and participations and provided for inclusive development of the  market  and  encouraged  cost-effective  hedging  for  participants  like  farmers  and  Small  and Medium-sized Enterprises (SMEs), if so, the details thereof?

## ANSWER

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

- (a) Yes.    SEBI,  vide  circular  dated  September  28,  2016,  notified  that  commodity  derivatives exchanges  would  be  permitted  to  introduce  trading  in  'options'  subject  to  approval  of  SEBI. Detailed  guidelines  for  product  eligibility,  design  and  risk  management  framework  to  be adopted for options in commodity derivatives markets, under which exchanges have to apply to SEBI for launching trading in such contracts were issued on June 13, 2017. At present, Multi Commodity Exchange of India Ltd. (MCX) is offering Options trading in Gold Futures, Crude

oil  futures,  Copper  futures,  Silver  Futures  and  Zinc  futures.  The  National  Commodity  & Derivatives Exchange  Ltd. (NCDEX) is offering Options trading in Guar Seed futures, Guar Gum futures, Chana futures, Soybean futures and Refined Soy Oil futures.

- (b) Yes, Options are an effective tool for risk management for the commodity ecosystem. In other asset classes such as equities, options have gained considerable traction and added depth to the trading.  Commodity  Options  are  also  expected  to  improve  participation  and  liquidity  in commodity  futures  markets  on  account  of  combined  trading  /  hedging  strategies  involving futures and options leading to improvement in price discovery and good health of the overall market. With the presence of both futures and options, market participants can devise various hedging strategies to effectively hedge their risk exposure.
- (c) Presently options on five agricultural and five non-agricultural commodity futures are available for trading.  In case of options on non-agricultural commodity futures, the overall participation from clients including value chain participants and Small and medium-sized enterprises (SMEs) across  the  various  options  contracts  has  been  witnessing  a  gradual  improvement.  In  case  of options on agricultural commodity futures, as four out of the five products were introduced very recently in October 2018 only, trading and client participation is yet to gain traction and a few Farmers Producers Organizations (FPOs) have participated in the Options.

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