Commodity options likely by early 2006

Beginning early 2006, Indian investors will be able to trade in options contracts in the commodity derivatives market.

The decision will be part of the recommended amendments on the Forward Contracts Regulation Act (FCRA), that will be tabled in the winter session of Parliament

According to National Commodities and Derivatives Exchange of India (NCDEX) managing director PH Ravikumar the move would allow corporates to lock in the prices to hedge their risks, and would offer them the advantage of margins of conversion on the price differential.

The futures exchanges already have the mechanisms in place and are only waiting for the amendments to allow trading in options," he said at the seminar Investment and Hedging Opportunities in Commodities Market, organised by the Confederation of Indian Industries.

He further added that allowing banks and mutual funds to trade in commodity derivatives are only expected to give further impetus to the market, which has grown manifold in the last two years, crunching the time-frame by a fifth of the time taken by equity markets.

Crisil CEO and MD R. Ravimohan pointed out: "Many corporates including aluminium players, tea industry, cotton and sugar industry and the like are already looking keenly to take positions in the market."