Multi Commodity Exchange (MCX) obtained permission late last week to launch options trading in crude oil, silver, copper and zinc, following its recent launch of options contracts in gold.
After gold options took off successfully, the Securities and Exchange Board of India (Sebi) allowed MCX, the country's largest in commodities, to do expand its derivatives portfolio. However, the exchange is likely to lauch the products one by one.
The regulator has also permitted MCX to start futures contracts in diamonds. At present, such contracts are taking place only on the Indian Commodity Exchange. MCX has signed an agreement for a tie-up with the Singapore Diamond Investment Exchange, the world's first commodity exchange in physically settled diamonds for traders and accredited investors.
Sources say MCX will wait for some time before launching diamond contracts. "At present, our priority is to expand the basket of options trading," said an official of the exchange, who did not wish to be named.
MCX gold options had a slow start after being launched just ahead of Diwali. However, volumes picked up in recent weeks, after Sebi allowed it to provide liquidity support for illiquid contracts. One reason for the initial slow speed was that Indian commodity options devolve in futures on expiry. So, those holding onto options till the end, usually sellers, have to move to futures unless the contracts are squared off.
MCX's liquidity enhancement scheme is initially for six months. Sebi permitted it in March-end and MCX introduced it from April 24. After liquidity support was provided, the MCX gold options volumes reached a daily average of around Rs 13 billion; Open Interest (contracts not squared at the end of trading) is also rising.
"More importantly," said an MCX official, "after implementation of the liquidity scheme, the bid-ask spreads have also narrowed and are very tight now." MCX has earmarked Rs six million a month to be spent on the liquidity scheme.
Mrugank Paranjape, the exchange's managing director, said at an analysts' call last Monday that they would focus on making contracts deliverable and more reachable. Brass futures were launched a few months back, the first in the world. Sources say the exchange is working on the launch of nickel futures as the next under this series.
Paranjape had also said the exchange had decided to focus on corporate hedging to increase business. In that segment, MMTC has significantly expanded deliveries on the exchange. Vardhaman Textiles and some others have started actively participating in cotton contracts, says a report on MCX by brokerage house Edelweiss.