Agri Picks Report February 12, 2024: Geojit

Geojit’s report on Agri Picks

The National Commodity and Derivatives Exchange is considering launching options on futures in a few spices and other commodities. These commodities currently have options on goods contracts but are being phased out by the commodity derivatives exchange where agricultural commodities constitute a bulk of trading volume. “NCDEX is working to explore offering Options on Futures in a few commodities in the next few months,” an official spokesperson at the exchange told Informist. But he did not specify on which commodities the options on futures contracts will be launched. The options on goods contracts on a commodity are benchmarked to the spot price of the underlying commodity, whereas options on futures contracts are linked to the futures prices of the commodity. The settlement is delivery-based for options on goods contracts while the options on futures contracts are cash settled. The jump in trading volume on options on futures contracts in crude oil and natural gas on the Multi Commodity Exchange in the last one year led the commodity derivatives brokers to seek similar contracts in agricultural commodities on the NCDEX. The exchange already provides options trading in a few commodities but these contracts are options on goods. However, at the end of January, NCDEX announced that it was discontinuing options on goods contracts in guar seed, guar gum, maize, coriander, jeera, and turmeric. The exchange said that it will not introduce new expiries in respect of the options on goods contracts on these six agricultural commodities. These six options on goods contracts “were largely illiquid”. According to a source in the commodity broking business, the commodities on which NCDEX is considering introducing options on futures contracts will be among the six agricultural commodities where the options on goods contracts are being discontinued. The exchange will, however, have to comply with norms on introduction of new commodity derivatives contracts laid down by the Securities and Exchange Board of India. As per the market regulator’s norms, options on futures are permitted only if the average daily turnover of underlying futures contracts of the corresponding commodity during the previous 12 months is 2 bln rupees for agricultural and agri-processed commodities, and 10 bln rupees for other commodities. Currently, on NCDEX, the daily futures turnover is higher than 2 bln rupees only on select agricultural commodities. For instance, in jeera futures on the NCDEX, the average daily turnover was 1.6 bln rupees in Feb-Jan, which meant it didn’t meet the regulatory requirement for the launch of an options on futures contract on it. But in guar gum futures, the average daily turnover was 2.04 bln rupees and in guar seed was 2.31 bln rupees, and would therefore be eligible for launching options on futures contracts.

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12022024 – coom