Published: Wed, October 18, 2017
Business | By Max Garcia

Jaitley launches options trading in gold on MCX

Jaitley launches options trading in gold on MCX

One can start options contract with a kilo of gold.

As the five-day Diwali festival kicks off with Dhanteras, the Multiple Commodity Exchange of India (MCX) has launched gold option trading. "I am sure more it formalises, better it is for consumers, jewellers and those trading in this". "That is in consonance with the business environment for the future that we see." he added.

MCX has now launched a Gold Option contract, keeping Gold (1 Kg) futures as the underlying asset, with expiry on November 28, 2017 and January 29, 2018.

Options give the holder the right to buy or sell the underlying asset at expiration while a futures contract holder is obligated to buy or sell the underlying asset on a future date. The instrument allows small gold businesses to hedge their risk without worrying about the daily volatility.

Saurabh Chandra, Chairman, MCX, told BusinessLine: "The launch denotes one of the most significant reform measures since modern commodity derivatives trading started 14 years ago". MCX launched European-styled gold options, which are hedger-friendly and will be settled in delivery of physical gold through the futures contracts route of the same metal of 1kg weight, a release from the exchange said. Option, however, is not an obligation on the part of the investor to either buy or sell the gold. Since options carry limited downside risk, it could be a good tool for SMEs and farmers to hedge their commodity price exposures.

India is the world's second-biggest buyer of gold, typically importing around 800 tonnes a year, with the metal being used in everything from investment to religious donations and wedding gifts. "There has been a very conscious effort by the government and SEBI to develop and integrate commodity markets in a phased manner".

"After 3-6 months, we will decide after looking at the success of the gold options", he said. According to reports, MCX will approach the regulator Sebi (Securities and Exchange Board of India) for seeking permission for trading in other commodities like cotton, crude palm oil, silver and copper.

"As per the SEBI rule, options trade is allowed in a commodity which has certain volumes in futures trade. We have 7-8 commodities like cotton, CPO, crude, silver, zinc and copper which qualify", he said.

Like this: