TMI BlogDesign of Commodity Indices and Product Design for Futures on Commodity IndicesX X X X Extracts X X X X X X X X Extracts X X X X ..... derivatives products has been a subject of deliberation as it is considered to be conducive for the overall development of the commodity derivatives market, attracting broad based participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market. 2. In this regard, the Commodity Derivatives Advisory Committee (CDAC) of SEBI had inter-alia recommended introduction of options, derivatives on commodity indices and at later stage products such as weather and freight derivatives. SEBI has already permitted commodity options in Indian commodity derivatives markets. Based on the above recommendation of CDAC and comments received on SEBI consultation paper dated January 16, 2019 on des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rcular. 7. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market. 8. Exchanges are advised to: i. make necessary amendments to the relevant bye-laws, rules and regulations. ii. bring the provisions 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 9. This circular is available on SEBI website www.sebi.gov.in under the cate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded for at least 90% of the trading days during the previous twelve months. (All constituents shall meet this criterion) c. The average daily turnover of the constituent futures contracts during the previous twelve months is at least : i. INR 75 Crore for agricultural and agri-processed commodities ii. INR 500 Crore for all other commodities. (Constituents having at least 80% combined weightage in the index shall meet this criterion and no single constituent not meeting this criterion shall have a weightage of more than 15% in the index) However, the above turnover requirements shall not be applicable for sectoral indices subject to exch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion / announcement of re-balancing of the index. The production value will be average of the value of deliverable supply of underlying commodity for past five financial years prior to the construction / announcement of re-balancing of the index. b. In order to ensure that no single commodity dominates a composite index, maximum weightage for any index constituent in a composite index shall be capped at 30% and minimum weightage shall be at least 1%. However, these weightage caps shall not be applicable for sectoral indices subject to exchanges ensuring that any single constituent does not get heavily weighted in an index. c. In case of an index having multiple commodity groups, exchanges may put in place max ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing hours vary for constituents, trading hours for index derivatives shall be kept such that it is available for trading whenever any of the constituent futures contract is available for trading. However, on the day of its expiry, Index futures contract shall expire at 5:00 pm. 2. Size of the Contract: At least INR 5 lakh at the time of introduction in the market. 3. Tenor of the Contract: To begin with, maximum tenor of contracts shall be 12 months. 4. Available Contracts: Stock Exchanges shall decide the number of contracts, duration of contracts and launch calendar based on market requirements. 5. Position Limits: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication: Before launching any futures contract on an index, a Recognised Stock Exchange with commodity derivative segment shall submit its proposal with contract specifications and risk management framework to SEBI, for approval. 11. Risk Management Framework: Exchanges shall adopt risk management framework compliant with the CPMI-IOSCO Principles for Financial Market Infrastructures, including the following: a. Margining model and quantum of initial margins: Exchanges shall adopt initial margin models and parameters that are risk-based and generate margin requirements sufficient to cover potential future exposure to participants/clients in the interval between the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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