BSE forays into commodity derivatives with launch of gold, silver contracts

With 'zero' transaction cost, BSE aims to achieve significant trading volume on its platform

The Bombay Stock Exchange (BSE) on Monday started offering of futures trading in gold and silver contracts to mark its entry into the commodity derivatives segment and become India’s first universal stock exchange with all assets classes including equity, mutual funds, currency and commodity in its portfolio.

Despite being an inauspicious day of shraddha paksha, the BSE took the challenge to commence futures trading in commodities, since the regulator the Securities and Exchange Board of India (Sebi) approved the concept of universal stock exchange over a year ago. Under this concept, future contracts in commodities are allowed to be launched on equity exchanges and vice-a-versa.

Its rival the National Stock Exchange (NSE), however, has postponed its plan to foray into commodity futures also with gold and silver contracts till October 12.

“This is a momentous moment for all of us that the launch of commodity segment on the BSE has brought a truly universal stock exchange into the country. With this, there will be no commodity exchange or regional exchanges. All exchanges would be called upon as stock exchanges with commodities as a segment on it,” said S K Mohanty, Wholetime Member, Sebi.

Nearly 150 members out of 450 showed interest in commodity trading and 1,400 members registered with the BSE. The first bid price started with Rs 30,700 per 10 grams and Rs 30,800 per 10 grams on the BSE.

“We have announced ‘zero’ transaction cost in gold and silver for one year starting today. Let the traders experience our efficient trading and delivery system. Later on, we will decide the transaction cost depending upon the market condition and other factors including trading volume in these two commodities,” said Ashish Kumar Chauhan, MD, BSE.

When asked about the ‘zero’ transaction cost may raise Sebi’s eyebrow which other exchanges might claim as market making or liquidity enhancement scheme, Chauhan said, “We have examples for encouraging participants for trading in some segments on other exchanges in currencies and equities. Hence, there would not be any problem with ‘zero’ transaction cost for us.”

Meanwhile, BSE began with 1 kilogram (kg) gold and 30 kgs of silver contracts for delivery in December onwards. The exchange has already applied for approval with Sebi in crude oil and copper contracts. Later on, the BSE plans to expand its contracts into base metals including aluminium, zinc, lead and nickel for which it has tied up with the Bombay Metal Exchange.

Also for gold and silver contracts, the BSE has partnered with India Bullion and Jewellers Association (IBJA). In the third phase, however, the BSE is looking to launch agri commodities with cotton, guargum, sugar and edible oils and oilseeds to name a few. 

With this, the BSE plans to unveil 60-70 commodities on its platform in the next four years out of 90 commodities notified for trading on exchanges by the government of India.

Since the futures contracts were allowed in 2002, a number of exchanges erupted but only a few of them succeeded in some contracts. On some exchanges, however, problems persist with the top management of the exchange or the delivery of trading commodities. But, according to Mohanty, the commodity derivatives market continues to be in nascent stage despite India being a leading player in terms of production or consumption in a number of commodities.

Experts said that the prices displayed on the BSE in gold and silver contracts may be later considered as the benchmark for the entire India. BSE meanwhile plans to deliver gold and silver to every dealers and jewellers across the country for which it has started dialogues with participants in the ecosystem.