Gold Options, Need for Deepening Bullion Derivatives Markets Mr. P. K. Singhal, Whole Time Director and President MCX 12 August 2017

Options on Gold Futures SEBI guidelines for Options trading released (June 13, 2017) Amongst top 5 commodities traded on the Exchange; Initially only one commodity per Exchange Approval for Options on Gold 1 Kg futures contracts on MCX platform Gold is flagship product of MCX Gold futures on MCX - liquid and vibrant Participation from across the value chain – From bullion dealers to end consumers A national benchmark - Pricing in physical markets is +/- to MCX gold futures prices Physically settled contract – 1,417 Kgs of physical delivery through MCX platform in 2017 (till July) Strong Correlation of above 95% with CME gold prices (INR equivalent) Easy information access on numerous gold price influencing factors Physically settled contract – enables three legs of trading via MCX platform i.e. futures, options and physical delivery through futures/options. * till July

Benefits of Options More suitable to meet risk management requirements of smaller participants Functions virtually as an ‘insurance’ product No margin calls for buyers Only premium to be paid at the time of buying Option are more flexible than futures Enable hedgers to hedge against adverse price movement by locking in a price Provides flexibility to take advantage of any favourable price movement at the cost of just the ‘Premium’ Less costly as transaction charges are to be paid only on premiums Will enrich information flow in to the markets – About volatility, cost of holding (interest rates), underlying price movement, etc. Will lead to more innovative trading and hedging strategies involving both options and the underlying futures Will improve liquidity and efficiency of underlying futures contract

Initiatives post-SEBI Merger New Initiatives Policy recommendations Trading of commodity options Permission for Category III AIF participation LODR Regulations 2015 mandated all listed companies to disclose their commodity price risk and hedging activities in their Annual Reports Integration of security and commodity brokers Enhanced risk management norms Gold ETFs to invest in gold futures Other financial institution participations – Banks, FPI’s, Insurance and Pension Funds New products like derivatives on indices (e.g. bullion index) Custodians to extend custodial services to vault receipts of exchange accredited vaults

Benefits of Institutional Participation in Commodity Derivatives Improve liquidity, especially in farther month contracts Encourage participation from large hedgers, who need sustained liquidity in far-month contracts Enhance institutional research in commodity derivatives Enhance reach of the market Banks can introduce products with hedging in-built into it, that will bring down cost of credit Key value proposition to investors Portfolio diversification Protection from inflation Leverage

Untapped Potential of India’s Commodity Market India has a lot of potential to grow in the commodity futures market as compared to the rest of the world Institutional participation and more derivatives instruments can help increase India’s future-physical multiplier as well as improve hedging efficiency and help reduce credit exposure risk

Thank You!