Design of Commodity Indices and Product Design for Futures on Commodity Indices
Summary
This circular permits recognized stock exchanges with commodity derivative segments to introduce futures on commodity indices following prior SEBI approval. It mandates that index construction adhere to specific design guidelines in Annexure I, including eligibility criteria and rebalancing protocols. Furthermore, it establishes product design standards for these futures contracts as detailed in Annexure II, covering trading mechanics, position limits, and risk management frameworks.
Text
it has now been decided to permit recognised stock exchanges with commodity derivative segment to introduce futures on commodity indices. Construction of commodity indices shall conform to the guidelines prescribed in Annexure I and futures on commodity indices shall conform to the product design given in Annexure II.
The recognised stock exchanges with commodity derivative segment willing to start trading in futures on commodity indices shall take prior approval of SEBI for launching such contracts. Exchanges will have to submit at-least past 3 years data of the index constructed along with data on monthly volatility, roll over yield for the month and monthly return while seeking approval from SEBI.
Exchanges shall make necessary disclosures such as open interest of top 10 largest participants/group of participants in index futures (both long and short) and the details of their combined open interest in underlying constituents etc., in line with SEBI circular SEBI/HO/CDMRD/DNPMP/CIR/P/2019/08 dated January 04, 2019 regarding “Disclosures by Stock Exchanges for commodity derivatives” to the public.
The Exchanges shall augment their monitoring and surveillance capacity.
Composite (i.e., comprising of commodities from more than one sector) as well as sectoral indices, meeting the eligibility criteria prescribed herein are permitted. For being eligible to launch derivatives upon, Exchanges shall ensure that indices are compliant with IOSCO Principles for Financial Benchmarks and make necessary disclosures in this regard on their websites.
Constituent futures contracts should be in existence on the respective exchange for at least previous twelve months. The contracts have traded for at least 90% of the trading days during the previous twelve months. 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.
The index constituents and their weightages shall be at least annually selected and rebalanced. Exchanges shall decide and announce/disclose the constituents and weightages of the index at least three months before the actual re-balancing of the index.
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%.
The trading hours will be in line with the trading hours for constituent futures of underlying index. However, on the day of its expiry, Index futures contract shall expire at 5:00 pm.
At least INR 5 lakh at the time of introduction in the market.
To begin with, maximum tenor of contracts shall be 12 months.
Client level- Higher of: 5% of the total open interest in the market in commodity index futures Or 1000 lots. Trading Member level- Higher of: 15% of the total open interest in the market in commodity index futures Or 10000 lots
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Design of Commodity Indices and Product Design for Futures on Commodity Indices. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.