MCX, NCDEX gear up for index futures post Sebi nod, ICEX has no plans

NCDEX is also looking for partners to professionally managing index calculation and maintenance on its behalf

Commodity exchanges in India are gearing up to launch futures trading in indices after the market regulator allowed them to launch products in this segment last week.

The Securities and Exchange Board of India (Sebi) last week allowed comexes to launch futures trading in indices after seeking prior permission. Following this circular, leading commodity exchanges, including the Multi Commodity Exchange of India (MCX) and National Commodity and Derivatives Exchange (NCDEX), have started preparations in this direction.

They are set to launch futures trading in indices soon.

"NCDEX has designed a composite agri-commodities index along with few sectoral indices as per the guidelines issued by Sebi. We have an internal team of experts working on various products designs. We will launch these indices in a phased manner," said Kapil Dev, Executive Vice-President, NCDEX.

The exchange has also seeks to collaborate with a third party for professionally managing the index on its behalf, so that index calculation and maintenance can be done in an unbiased manner.

In pursuance of this objective, the existing Dhaanya index has been modified and upgraded, and renamed NKrishi.

India's leading commodity exchange MCX has already developed several segment-wise indices, including those on base metals, bullion and energy in association with Thomson Reuters Financial & Risk Business (now known as Refinitiv). These indices have been developed to conform to the global standards set by the International Organisation of Securities Commission (IOSCO), and are ready for launch.

MCX refused to comment on its plan for launching futures trading in these indices, or any need to tweak them as per Sebi directives.

Reliance anchored Indian Commodity Exchange (ICEX) has no plans to launch indices futures. "Permitting commodity derivative exchanges to launch futures on commodity indices is very progressive move by the regulator. It is a small step towards a giant leap for commodity derivative market reform and a development which is in line with the transformation witnessed in the equity market," said Sanjit Prasad, managing director, ICEX.

Meanwhile, commodity participants have been requesting Sebi to allow futures trading in indices and weather derivatives to enable them to trade in products that represent the entire basket of sensitive commodities.

"For expanding commodities markets we require 3Ps -- policy, product and participants. For that, our government and regulators are taking pragmatic policy decisions. Unified license, allowing equity exchanges to introduce new commodity contracts and allowing indexes in commodities are steps in that direction, (due to which) new products are being introduced. All participants -- mutual funds, portfolio management services (PMS) and category-III alternative investment funds (AIF) -- are now allowed in commodities, and we foresee a vibrant commodities markets ahead for which there is a need to cut in commodity transaction tax (CTT)," said Narinder Wadhwa, President, Commodity Participants Association of India (CPAI).

Meanwhile, Manoj Jain, Director & Head of Commodities at IndiaNivesh, believes that commodity indices are a game changer for the segment and this was a much-awaited announcement which will now complete the entire bouquet of products in this segment.

"The introduction of indices in the equity market transformed the entire broking segment in the past one decade. In the Indian financial market context, this development has the potential to change the commodity broking dynamics," said Jain.