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SEBI permits stock exchanges to introduce futures on commodity indices

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On June 18, 2019, The Securities and Exchange Board of India (SEBI) allowed the stock exchanges with Commodity Derivative Segment (CDS) to introduce futures on commodity indices. This will facilitate mutual fund and institutional participation in commodity exchanges.

Key Points:

  • The stock exchanges are required take prior approval from SEBI to launch such contracts. They will have to submit data of the index constructed at least for the past 3 years, along with data on monthly volatility, roll-over yield for the month and monthly return.
  • The constituent futures contracts should be in existence on the respective exchanges for at least the previous twelve months and they should have been traded at least 90% of the trading days during the previous twelve months.
  • The average daily turnover during the previous twelve months should at least be Rs 75 crore for agricultural and agri-processed commodities and Rs 500 crore for all other commodities.
  • The trading hours of index futures will be similar to that of index constituents’ futures trading. But on the day of expiry, the index futures contract will expire at 5 pm. The contract size should be at least Rs 5 lakh and maximum tenor of the contracts will be 1 year.
  • Stock exchanges will decide the number of contracts, duration of contracts and launch calendar as per market requirements.
  • Multi Commodity Exchange of India Ltd (MCX), the country’s largest metals and energy exchange, and National Commodity & Derivatives Exchange Limited (NCDEX), the country’s largest agri derivatives stock exchange, have commodity indices like iComdex, prepared jointly with Thomson Reuters, and NKrishi, respectively. But they were not traded.
  • Recently, National Stock Exchange of India Limited (NSE), Bombay Stock Exchange (BSE) and Indian Commodity Exchange Limited (ICEX) also launched the CDS.

About SEBI:
♦ Founded: April 12, 1992
♦ Headquarters: Mumbai
♦ Chairman: Ajay Tyagi