NEW DELHI, Dec 27: Commodity derivatives market wrapped up the year 2016 on a flat note but hopes to bounce back in 2017 with the launch of options and institutional participation being allowed by the regulator Sebi.
Three national exchanges — MCX, NCDEX and NMCE — and regional bourses are estimated to have clocked about Rs 67-68 lakh crore in 2015, little above the previous year’s Rs 66 lakh crore despite suspension of forward segments, chana and castor futures, and disruption as a result of demonetisation.
The year saw Securities and Exchange Board of India (Sebi) focusing more on streamlining the eco-system and putting a stronger foundation of surveillance and risk management to make the markets safer. It also gave in-principal nod for launch of new product ‘option’.
“Sebi has been regulating the commodities market for little over a year now. The year 2016 was good. We have taken all steps to make the market safer. Next aim is to increase the depth of the market and improve participation,” a senior Sebi official said.
The regulator is in the process of finalising the guidelines for the launch of options. “We will be able to finalise the guidelines by mid-January,” he said, adding that initially a few commodities would be allowed for option trade.
The official source said that one each in agri and non- agri commodities would be allowed for option trade, while MCX and NCDEX officials said that they are in “high state of readiness” to launch the much-awaited product.
Since there are only retail investors at present in the commodities derivatives market, the Sebi official said, “We are looking at allowing institutional investors and other financial players. We will go step by step next year.”
Stating that exchanges will ring in New Year with launch of option trade, MCX Managing Director and CEO Mrugank Paranjape said, “As soon as we are informed of specifications of the product, we would be ready to launch them.”
He said that the exchange was at different level of preparedness for other derivatives products such as indices and even upgraded technology and risk management systems for launch of new derivative instruments.
With Sebi indicating allowing of institutional investors, Paranjape said MCX has already applied to the regulator for recognition of its clearing corporation, which is a pre-requisite to participate in these markets.
Stating that NCDEX business was fraught with challenges and disruptions in 2016, Managing Director and CEO Samir Shah said 2017, however, is expected to be a year of “growth building”.
“2017 will be a year of new products, new services like the proposed WDRA regulated Repository and new market participants whole continuing on the path of strengthening risk management, surveillance and warehousing,” he added.
The year 2016 saw MCX retaining a major market share of over 85 per cent in the commodities market, followed by NCDEX and NMCE. Besides these three national level bourses, a dozen regional exchanges are operating in the commodities futures market.
On sharp fall in volumes on the NCDEX platform in 2016, Shah said that this was due to suspension of the forwards segment, delisting of castor and chana, and finally disruption as a result of demonetisation.
“The withdrawal of old currency has surely caused severe disruptions in the physical markets and being a derivatives market, we are experiencing the waterfall impact of this upheaval,” he said, adding that however the exchange believes that this a short-term impact and slowly and steadily the volumes should come back to normal.
Sharing about positive development, NCDEX chief said, “In the last one year, more than 18,500 farmers, belonging to nine Farmer Producer Companies have received 15-20 per cent higher farm-gate prices due to active hedging on the exchange platform. We plan to connect 50,000 farmers by March-end.”
On expectations from Sebi in 2017, Head of commodities and
currencies at Inditrade Derivatives and Commodities Harish Galipelli said, “We are hoping return of some of the suspended commodities like pepper, chana, tur, urad and castor. This suspension of these has negatively impacted the market.”
“2017 will definitely see launch of options trading. That should give fresh boost and momentum to brokerage house, clients and industry. If options are successful, eventually corporate participation will be allowed,” he said.
Galipelli also mentioned that the Sebi did much better job than erstwhile regulator FMC in terms of strengthening risk management, “It should help investors in the long run.”
To strengthen risk management system, Sebi in 2016 increased initial margins to cover at least a ‘Margin Period of Risk (MPOR) of two days for all commodity derivatives contracts.
It issued liquidation mechanism in the event of default and default waterfall mechanism; instructed exchanges to meet any shortfall in the ‘Settlement Guarantee Fund’ in full as indicated by quarterly risk assessment.
The regulator also issued warehousing norms for agricultural and agri-processed commodities; and strengthened the warehousing and compliance norms for warehousing Infrastructure and Warehouse Service Providers (WSPs). It also asked exchanges to enhance ‘Position Limits’ for Hedgers. (PTI)
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