Design of Commodity Indices and Product Design for Futures on Commodity Indices
SECURITIES AND EXCHANGE BOARD OF INDIA
June 18, 2019
The Managing Directors / Chief Executive Officers
All Recognized Stock Exchanges having Commodity Derivatives Segment
Dear Sir / Madam,
Sub: Design of Commodity Indices and Product Design for Futures on Commodity Indices
1. In the Union Budget Speech for the year 2016-17, the Hon’ble Finance Minister had announced that “new derivatives products will be developed by SEBI in the Commodity Derivatives Market”. Introduction of new commodity derivatives products has been a subject of deliberation as it is considered to be conducive for the overall development of the commodity derivatives market, attracting broad based participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market.
2.In this regard, the Commodity Derivatives Advisory Committee (CDAC) of SEBI had inter-alia recommended introduction of options, derivatives on commodity indices and at later stage products such as weather and freight derivatives. SEBI has already permitted commodity options in Indian commodity derivatives markets. Based on the above recommendation of CDAC and comments received on SEBI consultation paper dated January 16, 2019 on design of commodity indices and product design for futures on commodity indices, it has now been decided to permit recognised stock exchanges with commodity derivative segment to introduce futures on commodity indices. Construction of commodity indices shall conform to the guidelines prescribed in Annexure I and futures on commodity indices shall conform to the product design given in Annexure II.
3. The recognised stock exchanges with commodity derivative segment willing to start trading in futures on commodity indices shall take prior approval of SEBI for launching such contracts. Exchanges will have to submit at-least past 3 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, exchanges shall also publish the above data on their website before launch of the products.
4. Exchanges shall make necessary disclosures such as open interest of top 10 largest participants/group of participants in index futures(both long and short) and the details of their combined open interest in underlying constituents etc., in line with SEBI circular SEBI/HO/CDMRD/DNPMP/CIR/P/2019/08 dated January 04, 2019 regarding “Disclosures by Stock Exchanges for commodity derivatives” to the public.
5.The Exchanges shall augment their monitoring and surveillance capacity.
6. The provisions of this circular shall be effectivefrom the date of this circular.
7. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
8. Exchanges are advised to: i.make necessary amendments to the relevant bye-laws, rules and regulations.ii.bring the provisions of this circular to the notice of the stock brokers of the Exchange and also to disseminate the same on their website. iii.communicate to SEBI, the status of the implementation of the provisions of this circular
9. This circular is available on SEBI website www.sebi.gov.in under the category “Circulars” and “Info for Commodity Derivatives”.
Division of New Products and Market Policy
Commodity Derivatives Market Regulation Department
Design of Commodity Indices