Securities Exchange Board of India
June 13, 2017
The Managing Directors / Chief Executive Officers
All Commodity Derivatives Exchanges
Dear Sir / Madam,
Sub: Options on Commodity Futures- Product Design and Risk Management Framework
1. In consultation with Commodity Derivatives Advisory Committee (CDAC), SEBI vide Circular SEBI/HO/CDMRD/DMP/CIR/P/104 dated September 28, 2016 decided that Commodity Derivatives Exchanges shall be permitted to introduce trading in options. This circular is hereby being issued to stipulate necessary guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures.
2.The product design and risk management framework would be in conformity with the guidelines prescribed in Annexure 1 enclosed with this circular.
3. Eligibility criteria for selection of underlying Commodity Futures for Options: Options would be permitted for trading on a commodity derivatives exchange only on those commodity futures as underlying, which are traded on its platform and satisfy both the criteria specified below on the respective exchange:
a. The underlying ‘Futures contracts’ on the corresponding commodity shall be amongst the top five futures contracts in terms of total trading turnover value of previous twelve months;
b. The average daily turnover of underlying futures contracts of the corresponding commodity during the previous twelve months, shall be at least :
I. INR 200 crore for agricultural and agri-processed commodities II. INR 1000 crore for other commodities.
4. It is decided that initially, on a pilot basis each exchange shall be allowed to launch options on futures of only one commodity that meets the criteria prescribed above.
5. The Commodity derivatives exchanges willing to start trading in options contracts shall take prior approval of SEBI for launching such contracts.
6. The circular shall be effective from the date of this circular. 7. The Exchanges are advised to:
i. take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same,
ii. bring the provisions of this circular to the notice of the members of the Exchange and also to disseminate the same on their website,
iii. communicate to SEBI, the status of the implementation of the provisions of this circular.
8. 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.
9. This circular is available on SEBI website www.sebi.gov.in under the category “Circulars” and “Info for Commodity Derivatives”.
Deputy General Manager
Division of Market Policy
Commodity Derivatives Market Regulation Department