SEBI allows recognised stock exchanges with a commodity derivative segment to offer options on commodity indices

The Securities Exchange Board of India(SEBI) issued a Circular No. SEBI/HO/CDMRD/DNP/CIR/P/2022/ 34 dated 24.03.2022 on Introduction of Options on Commodity Indices –Product Design and Risk Management Framework.

SEBI has approved the introduction of commodities index options on recognised stock exchanges with a commodity derivatives component.

The Circular is Given Below:

1. In an endeavour to have more products in the Commodity Derivatives Market and based on the recommendation of Commodity Derivatives Advisory Committee (CDAC) and proposal from Stock Exchanges, it has now been decided to permit recognised Stock Exchanges having a Commodity Derivative segment, to introduce options on commodity indices.

2. The product design and risk management framework should be in conformity with the guidelines prescribed in the Annexure to this circular.

3. The recognised Stock Exchanges with a Commodity Derivative segment, willing to introduce trading in options on commodity indices shall take prior approval of SEBI for the same.

4. Stock Exchanges shall submit at-least past three-years data of the index constructed along with data on monthly volatility, roll over yield for the month and monthly return while seeking approval from SEBI. On approval, the Stock Exchange(s) shall also publish the above data on their website before launch of the contract.

5. Stock Exchanges shall make necessary disclosures, such as, open interest of top 10 largest participants/group of participants in “option in indices” (both long and short) and the details of their combined open interest in underlying constituents, etc., in line with SEBI Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2019/08 dated January 04, 2019 regarding “Disclosures by Stock Exchanges for commodity derivatives”.

6. Stock exchanges shall put in place adequate monitoring and surveillance capacity for the options on indices contracts.

7. The provisions of this circular shall be effective from date of this circular.

8. The Stock Exchanges with Commodity Derivatives segment are directed to:

8.1 take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same,

8.2 bring the provisions of this circular to the notice of the stock brokers/members of the stock exchange and also to disseminate the same on their website; and

8.3 communicate to SEBI, the status of the implementation of the provisions of this circular

9. This Circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

10. This Office Circular is issued with approval of the competent authority.

11. This circular is available on SEBI website www.sebi.gov.in under the category “Circulars” and “Info for Commodity Derivatives Market Regulation Department”.

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