Sebi Board to Con­sider Op­tions in Com­mexes

Ex­changes, bro­kers ex­pect op­tions to be avail­able for trad­ing by April 1

The Economic Times - - Finance & Commodities - Ram.Sah­gal@ times­

Mum­bai: The Se­cu­ri­ties and Ex­change Board of In­dia (Sebi) will soon is­sue a frame­work to en­able com­mod­ity ex­changes like MCX and NCDEX to launch op­tions. The mar­ket reg­u­la­tor, at its board meet this Satur­day, will con­sider amend­ments to be made to the Stock Ex­changes and Clear­ing Corporation (SECC) Reg­u­la­tions, 2012, that would per­mit ex­changes to launch op­tions with com­mod­ity fu­tures as the un­der­lier.

“The mat­ter of suit­able changes to the SCR Act and SECC Reg­u­la­tions (for op­tions’ in­tro­duc­tion) will be placed be- fore the Board by the rel­e­vant depart­ment at the upcoming board meet,” a Sebi of­fi­cial told ET. “Once that’s done, op­er­a­tional norms will be is­sued.”

Ex­changes and bro­kers ex­pect op­tions to be avail­able for trad­ing by April 1. Presently, MCX of­fers com­mod­ity fu­tures in me­tals and en­ergy. NCDEX and NMCE of­fer agro-based fu­tures. Sebi had in­vited pub­lic com­ments on Jan­uary 19 re­gard­ing amend­ing the reg­u­la­tion to in­tro­duce op­tions with com­mod­ity fu­tures as un­der­liers and their set­tle­ment by al­low­ing them to de­volve into com­mod­ity fu­tures. The last date for re­ceiv­ing com­ments was Jan­uary 31 and the of­fi­cial said they had got a “good re­sponse.”

The is­sue is com­plex as mar­kets will get a Euro­pean style op­tion that re­sults into de­liv­ery (Amer­i­can style op­tions). Nor­mally, Euro­pean style op­tions are cash set­tled and can be ex­er­cised (re­sult in de­liv­ery) only upon ex­pi­ra­tion of a con­tract. Amer­i­can style con­tracts, on the other hand, can be ex­er­cised any­time dur­ing the con­tract’s life. “Pay­ing more money at de­volve­ment might not be palat­able for some traders,” said a bro­ker on con­di­tion of anonymity. “Also, is­sues on po­si­tion lim­its (PL) will have to be ad­dressed. For ex­am­ple, if near month PL for op­tions and com­mod­ity fu­tures is 20,000 tonnes each and if you hold say 5,000 tonnes of fu­tures along with hold­ing op­tions con­tracts (20,000 tonne PL) be­fore de­volve­ment you will have to ex­tin­guish 5,000 tonnes from op­tions or fu­tures, re­sult­ing in mar­ket dis­tor­tions.”

The other is­sue is de­liv­ery pe­riod of most agri fu­tures10 days be­fore the con­tract ex­piry while that of a non-farm con­tract like gold be­gins five days be­fore ex­piry. Sebi might thus con­sider halv­ing the ten­der pe­riod for agri con­tracts, a mar­ket source said.

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