MCX gets Sebi's approval for deliverable futures contract in brass

The exchange is also proposing rubber, diamonds futures, and options in crude oil, silver, copper and zinc

MCX, the leading exchange for non-agri commodity derivatives, is for the first time in India planning futures contract in brass.

In another first for MCX, this metal contract, unlike other metals traded on the exchange, will be physical deliverable. Market regulator SEBI (Securities and Exchange Board of India) has already approved the contract's launch.

All other metal contracts on the exchange are cash-settled. However, several small and medium units which wanted to hedge in metals wanted a contract which could be settled in physical delivery.

The brass parts industry is largely centered in Jamnagar. This area falls in the Saurashtra region of Gujarat and has emerged as an industrial hub.

An MCX spokesperson said, “We are going to launch the contract next month. At present, we are doing ground-level engagement, starting with Jamnagar next week, to prepare for the launch.” 

Next on MCX's radar is rubber deliverable contracts. At present, Ahmedabad-based NMCE is a leading exchange in rubber futures. This exchange is now merging with the Reliance Capital-anchored ICEX. MCX has already received approval for the deliverable rubber futures. 

It has also applied to the Sebi for diamond contracts for which the exchange is expecting an approval soon. Once that is launched, it plans to move on diamond options. At present, diamonds are traded on ICEX. India is world’s largest diamond processor. 

Unlike other metal futures, the MCX brass contract will have a delivery window and any square off or carry forward has to be done before the contract enters the compulsory delivery contract. Physically deliverable contracts are creating a buzz as NCDEX has asked the Sebi to allow it to carry out physically deliverable contracts in Aluminium and Nickel.

Apart from brass deliverable futures, MCX also will also ask for Sebi's approval for options in crude oil, silver, a copper, and zinc, the exchange’s spokesperson said. MCX's gold options have not picked up yet. But, it has seen a few delivery cycles that were completed successfully, and hence, the exchange is proposing to launch some more options.

It has also sought permission to introduce a liquidity enhancement scheme. 

Globally, and also on NSE in India, options trading has been a major revenue earner for exchanges. An MCX spokesperson said that the option-to-future ratio should ideally be 50-60 per cent and achieve a 15-20 per cent ratio within 6 months of the launch of contracts. 

However, MCX expect it to contribute 15-20 per cent over next 3-4 years as revenue is charged on premium,  At present, MCX doesn’t have any transaction charge on options and will start only after volumes stabilize and volumes reach a particular scale.