MCX to launch crude oil, metals options; also gets nod for diamond futures

Nickel futures next on the anvil; Exchange was the first in the world to launch brass futures a few months ago

Multi Commodity Exchange (MCX) got permission, late last week, to launch options trading in crude oil, silver, copper and zinc. The exchange announced on Monday that crude oil (100 barrels) option and trading will start from May 15 and expire on June 15. 

This follows its recent launch of options contracts in gold. After that successfully took off, the Securities and Exchange Board of India (Sebi) has allowed MCX, the country’s largest in commodities, to do so in zinc (5 tonnes), silver (30 kg) and copper (1 tonne), apart from crude oil. The launch date of zinc, silver and copper will be declared later but the exchange has announced contract specifications of all new contracts. 

The regulator has also permitted MCX to launch futures contracts in diamonds. At present, these are taking place only on the Indian Commodity Exchange. MCX has signed an agreement for a tie-up with the Singapore Diamond Investment Exchange, the world’s first commodity exchange in physically settled diamonds for traders and accredited investors. 

Sources said MCX would wait for some time before launching diamond contracts. “At present, our priority is to expand the basket of options trading,” said an official of the exchange, who did not wish to be named.

MCX gold options had a slow start after a launch just ahead of Diwali. However, in recent weeks, after Sebi allowed it to provide liquidity support for illiquid contracts, the volumes have picked up. One reason for the initial slow is that Indian commodity options devolve in futures on expiry. So, those holding on options till the end, usually sellers, have to move to futures unless these are squared off.  

MCX’s liquidity enhancement scheme is initially for six months. Sebi permitted it in end-March and MCX introduced it from April 24. After liquidity support was provided, the MCX gold options volume has reached a daily average of Rs3,787 billion; Open Interest (contracts not squared at the end of trading) is also rising. 

“More important,” said an MCX official, “after implementation of the liquidity scheme, the bid-ask spreads have also narrowed and are now very tight.” MCX has earmarked Rs 6 million a month to be spent for the liquidity scheme.

Mrugank Paranjape, the exchange’s managing director, said at an analysts’ call last Monday that they would focus on making contracts deliverable and more reachable. Brass futures were launched a few months earlier, the first in the world. Sources say the exchange is working on launch of nickel futures as the next under this series. Paranjape had also said the exchange had decided to focus on corporate hedging to increase business. In that segment, MMTC has significantly expanded deliveries on the exchange.

Vardhaman Textiles and some others  have started actively participating in cotton contracts, says a report on MCX by brokerage house Edelweiss.