Comexes gear up for index futures

The commodity exchanges are gearing up to introduce new instruments such as index-based derivatives and options trade after the amendment to the Forward Contracts Regulation Act (FCRA) comes into effect.

"The FMC will grant permission to introduce products such as index-based derivatives and options only on merit. If the product is extremely meritorious and attractive, it will be permitted first," said FMC Chairman S Sundareshan.

The amendment to the FCRA, which is before the Parliament's Standing Committee, is expected to be cleared during the current session. The amendment will give autonomy to the FMC, empowering it with greater control over the commodities markets.

Commodity exchanges are ready with contracts and technical details to facilitate trade on the new instruments.

"Technically, the Multi Commodity Exchange of India (MCX) is ready and we also have the contracts in place. But, we will have to see the rules and regulations framed by the committee set up by the FMC and headed by N C Gupta," said Joseph Massey, deputy managing director of the exchange.

"Almost all members are equipped with the system. A couple of seminars, however, need to be conducted for proper awareness among the members. Options in securities market attract only about 15 to 20 per cent of the total turnover, but beyond the turnover is the additional instrument which would be available for members to hedge risk in efficient ways," he said.

According to Srikant Subbarayan, chief business officer of the National Commodity and Derivatives Exchange (NCDEX), the exchange will have an edge in agri commodities where it claims to be the leader in futures trade.

"Being the leader in agri commodities and options being an important instrument for complete derivatives transactions, it would add enormously to our turnover. This is the right time for the government to grant permission for trading in option, derivatives in indices and weather. This would give a significant boost to trade in agri commodities and we would be a major beneficiary of it," said Srikant.

Any new instrument launched on any platform required technology, skills, efficient manpower and awareness among market participants and the NCDEX was ready on all the four fronts. We would soon be launching new instruments after the government approved the FCRA amendment, said a senior executive of the NCDEX.

The National Multi Commodity Exchange (NMCE) is also technologically ready to launch the new instruments. Draft specifications are also ready with the exchange with the hope to begin trading immediately after obtaining necessary approvals from the regulator.

Futures and options were complementary to each other and one without the other was incomplete, said NMCE MD Kailash Gupta.

"In the stock market too, derivatives liquidated to their fullest potential only when options were permitted. Futures' participants will be facilitated with options and vice versa," said Gupta.

With options in place, the turnover of commodity exchanges would spurt at least five times over the current level. Trading in indices had also added excellent volumes to the NSE and the story would repeat in commodity exchanges as well, Gupta said.