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NSE launches 13 new Commodity Derivatives Contracts

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The National Stock Exchange (NSE) has recently announced the launch of 13 new commodity derivatives contracts. The new derivatives contracts include ‘Option on Futures’ on Gold 1kg Futures, Gold Mini Futures, Silver Mini Futures, Copper Futures and Zinc Futures, Gold Guinea (8 grams) Futures, Aluminium Futures, Aluminium Mini Futures, Lead Futures, Lead Mini Futures, Nickel Futures, Zinc Futures and Zinc Mini Futures.

Presently, the commodity segment is regulated by SEBI however that was always not the case. In the Budget Speech of 2015, Hon’ble Finance Minister announced the merger of the Forwards Markets Commission (FMC) with SEBI. Prior to that, FMC had the regulatory oversight over the commodity derivatives markets under Forward Contracts (Regulation) Act, 1952 (FCRA). Through the Finance Act, 2015, FCRA, was repealed w.e.f. September 28, 2015. Consequently, all recognized associations (i.e. commodity derivatives exchanges) under FCRA have been deemed to be recognized stock exchanges under the Securities Contracts (Regulation) Act, 1956 (SCRA).

The Indian commodity derivatives market follows a three-tiered regulatory framework comprising the central government, SEBI and the exchanges.

The central government formulates policies with regard to the recognition of commodity exchanges and commodities to be listed for trading. SEBI is the implementor of the central government’s policies with an objective of protecting the interest of investors and promoting the development of markets. Exchanges develop products in accordance with the rules and regulations of the securities market and create an online platform for various market participants.

In the past, SEBI has issued directions to the exchanges prohibiting the launch of derivates of certain commodities such as Mustard Seed and Chana.

While the Commodity Derivatives Segment has seen a surge in interest from participants, following the launch of new products like WTI Crude Oil and Natural Gas derivatives at the NSE. However, in contrast, a recent report by SEBI in relation to trading in Equity F&O Segment had observed that 89% of the individual traders (i.e. 9 out of 10 individual traders) in equity F&O segment incurred losses.

Securities laws enthusiasts, in the American context, should read more about the Onion Futures Act which bans trading of futures contracts on onions and what led to such a ban. Further, whether there is any similar prohibition in the Indian context?

A copy of the NSE Press Release is enclosed below.

Readers are welcome to send their views to Regstreet Law Advisors at info@regstreetlaw.com

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