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Commodity options

10 March 2017

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India issues guidance backing options on futures approach

On Jan. 19, the Securities and Exchange Board of India published a consultation paper that clarifies a key issue blocking the introduction of exchange-traded commodity options. The government permitted exchanges to offer these products last year, but did not define what type of option could be listed. The proposed amendments would allow the trading of options on futures, which would settle into the underlying commodity futures contracts on expiry, rather than cash-settled options. Although this differs from the practice in India's equity derivatives market, SEBI explained that options on futures might be more suitable for agricultural commodities in India. SEBI also noted that the leading commodity derivatives exchanges in many other countries list options on commodity futures.

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