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TMI BlogCriteria for Eligibility, Retention and re-introduction of derivative contracts on CommoditiesX X X X Extracts X X X X X X X X Extracts X X X X ..... otification by the Government or on which the exchange proposes to launch a contract should pass through some test based upon the objective parameters and upon satisfaction, should be allowed for trading. 2.2. It is also important that the contracts available for trading in the commodity derivatives market are liquid enough for the contracts to trade smoothly. 3. Though it may not be practicable to keep a strict objective criteria which may be uniformly applied across all commodities for inclusion under derivatives, a broad framework can certainly be laid down. Thus, based on the recommendation of CDAC and in consultation with the stakeholders, it has been decided that the following criteria for eligibility, retention and re-introduction of derivative contracts on commodities shall be followed by all national commodity derivatives exchanges ('exchange'). 3.1. Eligibility criteria for allowing derivative contracts on commodities a) Exchanges shall examine following basic parameters and the commodity may be permitted to be included under derivatives if such commodity satisfies these parameters. I. Commodity Fundamentals Size of the market / Volume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one to price control may be less conducive for derivatives markets. Applicability of other laws : The Food control Regulation Act, Essential commodities Act, APMC Act etc., may have an impact on the commodities to be introduced for derivatives trading. Commodities which have excessive restrictions may be less conducive for derivatives markets. IV. Risk Management Correlation with International Market: Commodities which have a strong correlation with the global market have higher need for price risk management. Such commodities are conducive for derivatives trading. Seasonality: The Indian commodity sphere is characterized by seasonality. The prices fluctuate with the supply season and the off season. The derivatives market is necessary to even out this fluctuation and facilitate better price discovery. Thus the commodities with higher seasonality are conducive for derivatives trading. Price Volatility: Commodities with high volatility of prices have high need for hedging. Such commodities are conducive for Derivatives trading. b) In order to bring in uniformity among the commodity derivatives exchanges, the indicative template as enclosed at Annexure A s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of this circular to the notice of the stock brokers 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. 7. This circular is available on SEBI website at www.sebi.gov.in under the category Circulars and Info for Commodity Derivatives . Yours faithfully, Vikas Sukhwal Deputy General Manager Division of Market Policy Commodity Derivatives Market Regulation Department Tel. no.: +91-22-26449234 Email: [email protected] Annexure A Criteria for Commodity Eligibility for Derivative Products Template Section I Particulars Weight Sub-score Details Parameter I - Commodity Fundamentals Size of commodity This parameter relates to production, imports, carryover stocks etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Exports Importance in global trade and to our economy. Ability to add value to the base commodity. Commercial application, nature of buyers, Supply/demand gap etc. Domestic market / Geographical coverage Presence of Value Chain participants (VCPs) Supply/ Demand Parameter III Score Particulars Weight Sub-score Details Parameter IV - Risk Management Correlation The risk parameters viz., volatility, correlation with either domestic traded prices or globally tr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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