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

2. 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

3. 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

4. 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

5. 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

6. 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

7. Thank You!