Budget signals introduction of new commodity derivatives products2 min read . Updated: 01 Mar 2016, 01:05 AM IST
While the FM did not specify products likely to be introduced, market participants expect the introduction of option contracts in commodity derivatives, similar to those available in equities
Mumbai: Finance minister Arun Jaitley on Monday indicated that the government plans to allow the launch of new commodity derivative products to help deepen the markets. While the finance minister did not specify the products likely to be introduced, market participants expect the introduction of option contracts in the commodity derivatives market, similar to those available in the equities market. They also expect a wider range of indices to be introduced.
“To start with, it will be nice to bring in options on the core index similar to the ones in the securities market. It will also be positive to have new indices such as weather indices. It will bring liquidity and depth into the commodity derivatives market," said Girish Dev, managing director and chief executive officer of Geofin Comtrade Ltd.
The possibility of new products being introduced gave a boost to the stock price of the only listed commodity bourse—Multi Commodity Exchange of India Ltd (MCX). Shares of MCX gained 6.2% to ₹ 818.10 apiece soon after the announcement. They closed the day up 5.52% at ₹ 812.80 apiece.
Naveen Mathur of Angel Broking Pvt. Ltd said the introduction of new products has been spoken about earlier and the reiteration of the resolve to deepen the market is positive.
“Expect introduction of options trading and products like weather indices. Also, it will be a good idea to introduce index-related options and non-agriculture commodity options to begin with to bring in liquidity and depth in the market," said Mathur.
The Securities and Exchange Board of India (Sebi), which is now the regulator for the commodity derivatives market as well, has been tasked with developing new products for commodities. So far, Sebi has stayed away from introducing new products and investors into the commodities market as it seeks to first strengthen the regulatory framework for this market. Proposals, including one which suggests allowing banks and foreign investors into the commodities market, remain pending.
The finance ministry also highlighted the government’s plan to implement a unified agriculture marketing scheme which envisages a common e-market platform that will be used across selected 585 regulated wholesale markets.
“Amendments to the APMC Acts of the states are a pre-requisite to join this e-platform...12 states have already amended their APMC Acts and are ready to come on board. More states are expected to join this platform in the coming year," the finance minister said.
APMC refers to Agricultural Produce Market Committee.
Samir Shah, managing director and chief executive officer of the National Commodity and Derivatives Exchange Ltd, said that the e-platform will improve transparency and efficiency in the agricultural markets and help connect the smallest farmer to the markets.