Small step in the direction of large leap for commodity marketplace reform: ICEX chief
SEBI has allowed exchanges to launch futures trading in commodity indices. The pass will further facilitate mutual fund and institutional participation in commodity exchanges.

Bourses willing to start commodity indices futures buying and selling has to publish ultimate 3 years data of the index constructed together with information on monthly volatility, roll-over yield for the month and monthly return while looking for approval from SEBI, the regulator stated in a statement on Tuesday.

The buying and selling hours of index futures could be consistent with that of index ingredients’ futures trading. However, on expiry day, the index futures contract will expire at 5 pm. The agreement length ought to be at the least ₹five lakh and maximum tenor of the contracts could be 12 months. Stock exchanges will decide on the variety of contracts, period of contracts and release calendar as in keeping with marketplace requirements, said SEBI.

Sanjit Prasad, MD and CEO of Indian Commodity Exchange (ICEX), said allowing commodity change to release futures on commodity indices is a small step toward a giant leap for commodity market reform which is in step with the transformation witnessed in the equity market.

Limits
Client-level limit could be 5 consistent with cent of the overall open interest within the index futures or 1,000 plenty, while for trading contributors it will likely be 15 in keeping with cent of the whole open interest in the index or 10,000 plenty.

Exchanges will determine on the daily price restriction for commodity index futures based on historical rate motion of the indices. The final agreement of the index futures may be achieved in coins on the rate arrived at primarily based on extent weightage and average rate of the parts of the underlying index between four pm and five pm at the expiry day.

Exchanges need to make certain that indices on which futures buying and selling is being launched are compliant with IOSCO principles for monetary benchmarks and no longer prone to manipulation. Exchanges ought to make essential disclosures together with open hobby of top-10 biggest members in index futures and information of their mixed open hobby in underlying parts, besides augmenting their tracking and surveillance ability.

The ingredients of the commodity index have to have futures contracts which are in existence on the trade for at least previous 12 months and are traded for as a minimum 90 in line with cent of the trading days all through the preceding 365 days. The average daily turnover of the constituent futures contracts throughout the previous one year should be at the least ₹seventy five crore for agricultural and agri-processed commodities and ₹500 crore for all different commodities.

Constituents having as a minimum eighty in step with cent mixed weightage inside the index have to meet the common daily turnover standards and ingredients no longer assembly the turnover criteria will now not have weightage of over 15 in line with cent in the index. However, SEBI said the turnover criteria will not be applicable for sectoral indices subject to exchanges making sure that constituent futures have adequate liquidity.

In order to make sure that no single commodity dominates an index, maximum weightage for any index constituent in a composite index shall be capped at 30 in step with cent and minimal weightage will be at least 1 consistent with cent.