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SEBI allows futures trading in commodity indices

Date: 19 June 2019 Tags: Industries

Capital markets regulator Securities Exchange Board of India (SEBI) has permitted stock exchanges with commodity derivative segment to introduce futures on indices. This decision is taken in line with recommendations of Commodity Derivatives Advisory Committee. SEBI already has permitted commodity options in commodity derivative markets.

SEBI Directives

  • The stock exchanges, willing to start trading in futures on commodity indices, are required to take prior approval from SEBI for launching such contracts.
  • Exchanges will have to submit at-least past 3 years data of index constructed along with data on monthly volatility, roll over yield for the month and monthly return while seeking approval from SEBI.
  • Constituent futures contracts: They should be in existence on respective exchange for at least previous one year, and should have traded for at least 90% of trading and have minimum average daily turnover.
  • Turnover: It should be at least Rs 75 crore for agricultural and agri-processed commodities, and Rs 500 crore for all other commodities.
  • Size of the contract: It has to be at least Rs 5 lakh at the time of introduction inmarket with an initial maximum tenor of 12 months.
  • Position limits: It should be over 1,000 lots or more than 5% of the total open interest in commodity index futures for clients. It will be more than 10,000 lots or above 15 percent for traders.
  • Weightage: Any onstituent in composite index should have maximum weightage of 30% and a minimum of 1%. The weightage of the index constituents should be periodically selected and re-balanced.