Options in Goods - Product Design and Risk Management Framework
Summary
This circular permits recognized stock exchanges to launch 'Option in Goods' contracts, defined as derivatives on specific underlying goods notified by the Central Government. It mandates that product design and risk management frameworks adhere to the enclosed Annexure, including strict eligibility criteria for underlyings and settlement via delivery. Exchanges must obtain prior SEBI approval, enhance surveillance capabilities, and implement comprehensive disclosure and margining requirements.
Text
The Central Government declared a contract for the purchase or sale of a right to buy or sell or a right to buy and sell in future, such underlying goods, as a derivative for the purposes of the said Act. For ease of nomenclature, the instrument notified vide the said Notification may be called as ‘Option in Goods’.
Stock Exchanges are now permitted to launch ‘Option in Goods’ in their commodity derivatives segment.
The product design and risk management framework would be in conformity with the guidelines prescribed in Annexure enclosed with this circular.
Exchanges willing to start trading in options contracts with goods as underlying shall take prior approval of SEBI for launching such contracts.
Exchanges shall make necessary disclosures such as open interest of top 10 largest participants/group of participants in “option in goods” (both long and short) and the details of their combined open interest in underlying constituents etc., in line with SEBI circular... to the public.
The Exchanges shall augment their monitoring and surveillance capacity.
The circular shall be effective from the date of this circular.
The Exchanges are advised to: i. take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same, ii. bring the provisions of this circular to the notice of the members 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.
Only those goods shall be eligible as underlying for these options, on which exchange either is already trading the futures contracts or is proposing to launch the futures contracts on or before the day of launching option in those goods.
On exercise, option contract shall be settled through delivery of goods.
All exercise style are permitted.
Each option expiry shall have minimum three strikes available viz., one each for In the Money (ITM), Out of the Money (OTM) and At the Money (ATM).
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 — Options in Goods - Product Design and Risk Management Framework. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.