The commodity derivatives market has found a renewed vigour with SEBI permitting the formation of a universal exchange from October 1, 2018. This move helped participants in various markets with a highly regulated, safer and more transparent trading, clearing, and settlement framework. Moreover, trading in a universal exchange offers significantly greater convenience for investors and traders, who can trade in all asset categories from a single account, reaping benefits arising from enhanced competition across all categories, thus creating deeper markets with lower spreads and transaction charges.
“BSE is the first Indian Exchange to accept orders and execute trades at negative prices via its BOLT Plus trading system.”
Commodity Derivatives Market -BSE Foray Opening New Vistas
Following SEBI approval in October 2018, BSE became India’s first universal exchange and offers all asset classes permitted for trading including equity, equity, currency, interest rate, and commodity derivatives. BSE offers a wide gamut of commodities encompassing gold and silver in precious metals, Brent and Oman Crude in energy commodities, copper, aluminum and zinc futures in Base metals complex and Guar Seed, Guar Gum, Cotton, Turmeric and the only almond futures contract in the world in the Agri segment.
Launch of commodity ‘options on goods’
To widen and deepen the commodity markets, a working group, with BSE designated as the lead and coordinator, was set up by SEBI to study the introduction of new derivatives products. The major recommendation was the introduction of the necessary framework to introduce ‘options on spot’ prices of commodities instead of futures prices.
BSE Gold Mini and Silver KG options contracts
On June 1, 2020, BSE launched the first options contract on Gold mini and Silver kg based on spot prices. Until then, options contracts which devolve on underlying futures contract were only available. The gold mini options trading unit on BSE is 100 grams and the base value is Rs. per 10 grams. The maximum order size is 10 KG, delivery units are 100 grams. Similarly, the silver KG options trading unit on BSE is 1 KG and the base value is Rs. per KG. The maximum order size is 600 KG, the delivery unit is 1 KG. Both contracts are deliverable at BSE’s designated vaults in Ahmedabad.
BSE has received extremely encouraging response from all stakeholders and is the market leader in the bullion options segment. In about a month since launch, BSE has emerged as the second-largest Exchange in India as far as turnover is concerned in commodities. The highest turnover registered was INR 2,442 crores.
BSE also completed one full delivery cycle in Gold mini in ‘options in goods’ contracts by executing maiden delivery on 30 June 2020. The delivery was produced by a Delhi based member while the counterparty buyer was from Punjab. The physical delivery was successfully completed at the exchange designated vault in Ahmedabad, Gujarat. Amid this lock-down, BSE successfully managed to complete the entire process flawlessly. Seamless and integrated delivery via the exchange mechanism is extremely beneficial for small and mid-level jewellers and bullion dealers, who can not only hedge their price risk but also avail delivery on expiry of the options contract.
Commodities Market Made More Vibrant
Apart from providing its platform for stakeholders of commodities markets to hedge against the price risk, the entry of BSE has provided participants with cost-effective and best-in-class technology solutions. Our tie-ups, partnerships, and alliances with various physical market participants has enabled the strengthening of warehouses and other support infrastructure, which is essential for vaulting, assaying, and quality certification, etc. Additionally, BSE has also enabled its BOLT Plus trading system to accept orders and execute trades at negative prices, making it the first exchange in India to offer this facility to participants in India.
Supporting the Prime Minister’s vision of “Make in India” and “Atmanirbhar Bharat” and commitment of Government notified standards, BSE became India’s first exchange to issue guidelines to comply by India Good Delivery Standard on its commodity derivatives platform. The Bureau of Indian standard (BIS) has notified standards – IS 17278: 2019, sets the standards for purity, form and provenance of gold and silver bars and the way in which they are manufactured, traded and delivered.
BSE plans to systematically develop the commodity market via product innovation, awareness, and research with a view to provide a wider product range to the market participants. With several new and innovative products, stress on continuous improvement, and an established culture of serving its stakeholders, BSE is aiming to widen its commodity portfolio and reach, to achieve its next stage of its growth.