The Securities and Exchange Board of India (Sebi) on Thursday allowed exchanges to have a commodity derivative segment to facilitate trading in options on commodity indices. Exchanges will have to seek a prior approval from the market regulator for allowing the same, Sebi said in a circular on Thursday.
The regulator has further asked exchanges to submit data of ‘at least’ three past years of the index constructed, monthly volatility, rollover yield for the month, and monthly return.
“On approval from the regulator, the Stock Exchange(s) shall also publish the above data on their website before launch of the contract,” Sebi said.
Additionally, exchanges are also required to disclose open interest of top 10 largest participants or group of participants in ‘option in indices’ (both long and short) and details of their combined open interest in underlying constituents.
In February this year, Sebi had proposed to allow foreign portfolio investors (FPIs) to participate in exchange-traded commodity derivatives market, following requests from FPIs in the past. So far, FPIs have not yet been allowed to participate in exchange-traded commodity derivatives. On the other hand, institutional players like Alternative Investment Funds (AIFs), and mutual funds are currently allowed to participate in the commodity markets.
Sebi further stated that each option expiry should have minimum three strikes — one each for In the Money (ITM), Out of the Money (OTM), and At the Money (ATM). Furthermore, the size of the contract should be at least `5 lakh at the time of introduction in the market, the circular said.
Trading hours of the options on the commodity indices will be similar to trading hours of the constituent futures of underlying index, and the expiry date can be set by the exchanges, Sebi said on Thursday.
