New Delhi/Mumbai: The Union cabinet cleared the way on Thursday for commodities exchanges to launch options, a move that should boost liquidity on markets that are already attracting international investors.
“New products like options will be allowed in the commodity market,” the government said in a statement after amendments to the regulatory bill were approved. “This will benefit various stakeholders including the farmers.”
The move was welcomed by analysts and market players, who said it would allow the introduction of new products and attract companies that had stayed out of volatile commodities.
“We would be able to allow more innovative products. It will attract wider participation,” Tanushree Mazumdar, senior economist at National Commodity and Derivatives Exchange, said.
The main beneficiaries of the reforms will be companies that produce commodities or use them as raw materials, since options would provide them with more security in volatile markets.
“People who will benefit most will be the corporates,” Gnanasekar Thiagarajan, a director at Commtrendz Research said.
“Companies want to get into commodity futures, but the volatility frightens them.”
Under the new rules, India’s exchanges regulator, the Forward Markets Commission, would have autonomy and increased powers, the cabinet statement said.
The Bill now goes to Parliament for final approval. Forward Markets Commission chairman BC Khatua told Reuters he expected it to be tabled in the coming winter session.
Khatua said the changes would attract institutional financial players to the futures markets.
An analyst at a commodity brokerage in Dubai said options trading and the proposal to allow banks and financial institutions in would draw international interest.
“India is a favourite investment destination. There would be huge interest from banks and institutions,” Pradeep Unni, head of research and trading at Richcomm Global Services, said.
“It is most likely that options would be initially introduced in internationally liquid products like metals and from there on in agricultural products.”
International investors Goldman Sachs and IntercontinentalExchange have already bought small stakes in Indian exchanges.
Last month, the market regulator said Reliance Anil Dhirubhai Ambani Group planned to buy a stake in the Indian Commodity Exchange, a leading bourse for trade in metals including gold. Jaypee Capital wants to acquire 26% in the National Commodity and Derivatives Exchange.