Finance Minister Arun Jaitley on Tuesday launched the country's first gold options trading on the Multi Commodity Exchange (MCX) in the capital to coincide with the auspicious goldbuying festival of Dhanteras. The Finance Minister said this is one of the steps towards formalising gold trade in the country. "This marks a very important evolution in trading of yellow metal itself. It hedges all risks by giving the traders the option of futures, Jaitley said after unvieling the options trade. Indians are great buyers of gold. This new product will be extremely successful, he said.
Emphasising that the government is taking efforts to formalise gold trade, Jaitley said, `I am sure the more it formalises, better it is for consumers, jewellers and those trading in this. That's in consonance with the business environment for future that we see for us.'' This is the first product for options trading that the regulator Sebi has allowed after 14 years of commencement of commodity exchanges in the country, he added. According to MCX, gold options contracts are available for trading from today and investors can trade in one kg gold. The contracts will expire in November and January 2018.
"The introduction of options gives a strong impetus towards systematic development and transformation of commodity derivatives market in India," MCX chairman Saurabh Chandra said in the statement. Options give buyers the right to buy or sell an underlying asset at a specified price at the expiry and the risk is limited only to the premium paid to the seller of the option, the exchange said. India is the world's secondbiggest buyer of gold, typically importing around 800 tonnes a year.
The yellow metal is used as an avenue of investment, for wedding gifts and to make religious donations. Asked about measures taken to promote the new product, MCX Managing Director and CEO Mrugank Paranjape said: Fundamentally, it is an extremely low-cost product. However as an introductory measure, we are not charging any transaction fee on this product till December. From the exchange perspective, that will be a good enough time to develop the market, he said.
On plans to launch more commodities under options category, he said, as per the Sebi rule, options trade is allowed in a commodity which has certain volumes in futures trade. We have 7-8 commodities like cotton, CPO, crude, silver, zinc and copper which qualify. The exchange has not applied for new commodities, he added. After 3-6 months, we will decide after looking at the success of the gold options, he added. Terming it as a major reform, MCX Chairman Saurabh Chandra said: Options would complement the existing array of commodity futures contracts and help in enriching the informational efficiency of the markets price discovery process. It gives market participants great flexibility to manage risk and achieve their trading objectives.
There has been a very conscious effort by the government and Sebi to develop and integrate commodity markets in a phased manner, he said. To further strengthen the market, he said that a committee has been set up in NITI Aayog to integrate spot and derivative markets. Another committee set up by the finance ministry is looking at way to transform India's gold market. MCX is the leading commodity bourse in the country with a market share of over 90 per cent. It has a large presence in gold, base metals, and energy.