The much-talked-about futures trading in commodity indices is expected to materialise in the new calendar year, probably in the quarter ending March 2020. So far, only single commodity futures are permitted on Indian exchanges.
Market participants were optimistic about indices futures after the earlier regulator, the Forward Markets Commission, was merged with the Securities and Exchange Board of India in September 2015. However, they still have to wait for 2-3 quarters. Institutional and financial investors also prefer indices to hedge their risks, rather than taking positions in single commodity futures.
The first indication was given by the top management of the Multi Commodity Exchange in its interaction with analysts. Edelweiss Equity Research quoted top company management in its report on MCX saying the exchange was in the process of completing formalities and preparing a proposal for futures trading in indices, and submitting it to Sebi by September end.
Currently, there are three indices (composite, bullion, and base metal) jointly provided with Thomson Reuters and the company is taking efforts to provide data on tick-by-tick basis. The MCX has been maintaining these indices for the past five years.
MCX began providing tick-by-tick data of indices last October. “The MCX management is confident of getting approval by FY20. The pricing of the indices would be decided later after testing the market response,” sources said.
The NCDEX, another exchange eligible for launching futures in indices, is in the process of finalising a partner for indices management. NCDEX has designed a composite agri-commodities index along with few sectoral indices as per the guidelines issued by Sebi. The exchange will launch these indices in a phased manner. NCDEX plans to begin futures with an agri index.
Globally, derivatives in indices are a high volume item and compared to futures, options on indices generate higher volumes. Financial investors wanting to diversify their risks in other assets class hedge in commodity indices. For India, by the end of the current financial year, this will make a beginning.
Commodity indices find more traction when volatility increases and according to Sebi’s annual report 18-19, published a few days ago, the main indices of both MCX and NCDEX have seen an increase in volatility.
The annualised volatility for MCX COMDEX (a composite index representing Agriculture, Metals and Energy) in 2018-19 was 13.4 per cent as compared to 9.8 per cent the previous year. As regards NCDEX's NKrishi Index, representing agri commodities where the exchange has a dominating presence, the annualised volatility increased to 12.9 per cent during the year, as compared to 10.9 per cent in 2017-18.
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Market participants were optimistic about indices futures after the earlier regulator, the Forward Markets Commission, was merged with the Securities and Exchange Board of India in September 2015. However, they still have to wait for 2-3 quarters. Institutional and financial investors also prefer indices to hedge their risks, rather than taking positions in single commodity futures.
The first indication was given by the top management of the Multi Commodity Exchange in its interaction with analysts. Edelweiss Equity Research quoted top company management in its report on MCX saying the exchange was in the process of completing formalities and preparing a proposal for futures trading in indices, and submitting it to Sebi by September end.
Currently, there are three indices (composite, bullion, and base metal) jointly provided with Thomson Reuters and the company is taking efforts to provide data on tick-by-tick basis. The MCX has been maintaining these indices for the past five years.
MCX began providing tick-by-tick data of indices last October. “The MCX management is confident of getting approval by FY20. The pricing of the indices would be decided later after testing the market response,” sources said.
The NCDEX, another exchange eligible for launching futures in indices, is in the process of finalising a partner for indices management. NCDEX has designed a composite agri-commodities index along with few sectoral indices as per the guidelines issued by Sebi. The exchange will launch these indices in a phased manner. NCDEX plans to begin futures with an agri index.
Globally, derivatives in indices are a high volume item and compared to futures, options on indices generate higher volumes. Financial investors wanting to diversify their risks in other assets class hedge in commodity indices. For India, by the end of the current financial year, this will make a beginning.
Commodity indices find more traction when volatility increases and according to Sebi’s annual report 18-19, published a few days ago, the main indices of both MCX and NCDEX have seen an increase in volatility.
The annualised volatility for MCX COMDEX (a composite index representing Agriculture, Metals and Energy) in 2018-19 was 13.4 per cent as compared to 9.8 per cent the previous year. As regards NCDEX's NKrishi Index, representing agri commodities where the exchange has a dominating presence, the annualised volatility increased to 12.9 per cent during the year, as compared to 10.9 per cent in 2017-18.
VDO.AI
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