MCX gets Sebi nod to launch options on spot gold, silver

Mumbai: After NSE and BSE, stock exchange MCX is set to launch options on underlying commodities. The exchange, which runs the country’s largest commodity derivatives segment (CDS), on Tuesday received SEBI approval to offer trading on gold mini (100 gm) and silver 5 kilo options.

The gold mini option will be launched from August expiry onwards with expiry matching with gold mini futures. Normal expiry date is 5th of every month for mini futures. Three concurrent month contracts will be available, tick size will be 50 paise and price intervals between strikes at Rs 100. The maximum client position limit will be 10 tonnes and for broker, 100 tonnes.

Since inception, MCX gold mini futures contract has witnessed delivery of 52 metric tonnes. The launch of gold options will “complement” the existing contracts like gold kilo and mini futures and options on Gold futures, said Shivanshu Mehta, head, Bullion at MCX.

"Our existing suite caters for large corporate houses, Jewellers and bullion dealers who hedge their price risk here. The new mini options will attract the small and mid sized players in the gold market,” added Mehta.

MCX currently offers options on gold and silver futures which devolve into futures contract prior to expiry. This raises the holding cost, especially for buyers of calls and puts, as the margin to trade gold futures is significantly higher than premiums for a call or put option.

While NSE launched gold mini options on June 8, BSE launched a gold mini and silver kilo options On June 1. Brokers expect the new contracts to gain traction soon, but a few add that certain technical issues have cropped up.

"For getting clients to trade on the NSE or BSE commodity options, we need to get their approval and signatures on a document, which under the present lockdown conditions are proving slightly difficult,” said a broker who asked not to be named as his firm runs equity Broking services too.

This has happened because NSE and BSE are relatively newer entrants to the CDS while MCX has offered CDS since 2003. Typically clients opened equity trading accounts with brokers for BSE and NSE and commodity accounts on MCX.

"For trading another segment client approval is needed and that’s one of the reasons the offtake of the new options contracts will take time,” said another broker citing the lockdown.

On BSE notional turnover of active gold option strikes intraday Monday was Rs 720 crore. On NSE, intraday turnover was Rs 225 crore. MCX offers options on futures contracts in gold and silver. The new contracts it has applied for are options on underlying gold, like NSE and BSE.

In April, MCX had 95.2% market share in CDS, followed by NCDEX (4.1%). The 0.7% was accounted for by BSE, ICEX and NSE, in that order