The Securities and Exchange Board of India on Wednesday gave its green signal to launch options trading on the commodity derivative exchanges which is expected to reduce the hedging cost for farmers a
The Securities and Exchange Board of India on Wednesday gave its green signal to launch options trading on the commodity derivative exchanges which is expected to reduce the hedging cost for farmers and commodity-exposed firms.
The move will also help improve liquidity and deepen the commodity derivatives market in India.
The latest decision by Sebi would now bring the commodity derivative exchanges almost at par with equity markets where investors have the option to trade in both futures and options contracts in equity and equity indices.
“This is a very positive move as it will give one more avenue to farmers and companies exposed to commodities like base metals to hedge at a lower cost.
“In the absence of a vibrant and liquid commodity derivatives market in India, most of the large corporates exposed to commodity risks are currently hedging their position in the London Metal Exchange (LME),” said C.P. Krishnan, whole time director, Geofin Comtrade.
According to him, instruments like options contracts in commodity exchanges would also attract speculators and large traders from the equity markets, which will boost liquidity in the exchanges. At present the only instrument available in the commodity derivatives market is the futures contract on individual commodities.
