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SEBI: Risk Management Framework for Options on Commodity Indices

SEBI, vide Circular no. SEBI/HO/CDMRD/DNP/CIR/P/2022/34 dated March 24, 2022, permitted the recognised Stock  Exchanges having a Commodity  Derivative segment, to introduce options on commodity indices.

The said framework has been formulated based on the recommendation of the Commodity Derivatives Advisory Committee (CDAC) and proposal from Stock Exchanges. The circular mandates the recognised Stock Exchanges with a Commodity Derivative segment, willing to introduce trading in options on commodity indices to take prior approval of SEBI for the same.

Further, such Stock Exchanges are directed to submit the data index of at-least the past three years constructed along with data on monthly volatility, rollover yield for the month and monthly return while seeking approval from SEBI.  

On approval, the Stock Exchange shall publish the above data on their website before launching the contract. Additionally, the Stock Exchanges have to make requisite disclosures, such as the 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”.