SEBI permits recognised stock exchanges having commodity derivative segment to introduce options on commodity indices

In a major development, SEBI on Thursday released a circular on 'Introduction of Options on Commodity Indices –Product Design and Risk Management Framework'. SEBI has permitted the recognised stock exchanges having a commodity derivative segment to introduce options on commodity indices.

"In an endeavour to have more products in the Commodity Derivatives Market and based  on  the  recommendation  of Commodity  Derivatives  Advisory  Committee (CDAC)and proposal from Stock Exchanges, it has now been decided to permit recognised Stock  Exchanges having  a Commodity  Derivative  segment,to introduce options on commodity indices," SEBI said in the circular. 

"The recognised Stock Exchanges with a Commodity Derivative segment,willing to introduce trading in options on commodity indices shall take prior approval of SEBI for the same," the circular added.

Stock Exchanges shall submit  at-least  past  three-years  data  of  the  index constructed along with data on monthly volatility, roll over yield for the month and monthly  return  while  seeking  approval  from  SEBI.  On  approval, the  Stock Exchange(s)shall also publish the above data on their website before launch of the contract, the circular added.

"Stock Exchanges shall make necessary disclosures, such as,open interest of top 10 largest participants/group of participants in “option in indices” (both long and short) and the details of their combined open interest in underlying constituents, etc.,  in  line  with  SEBI  CircularNo. SEBI/HO/CDMRD/DNPMP/CIR/P/2019/08dated January  04,  2019  regarding  “Disclosures  by  Stock  Exchanges  for commodity derivatives”." 

Stock exchanges shall put in place adequate monitoring and surveillance capacity for the options on indices contracts, says SEBI.

The provisions of this circular shall be effective from date of this circular, SEBI said.