Criteria for Eligibility, Retention and re-introduction of derivative contracts on Commodities
Summary
SEBI mandates national commodity derivatives exchanges to apply specific eligibility, retention, and re-introduction criteria for commodity derivative contracts. Exchanges must evaluate commodities based on fundamental, trade, ease-of-doing-business, and risk management parameters using a standardized template. The circular establishes a minimum annual turnover threshold for retention and imposes cooling-off periods for discontinued or ineligible commodities. This section outlines the template for criteria used to assess commodity eligibility for derivative products. It divides the assessment into two sections covering fundamentals, ease of business, trade dynamics, risk management, and benchmark potential. The document specifies a scoring methodology using weights and a five-point scale to calculate an overall eligibility score.
Text
Exchanges shall examine basic parameters including Commodity Fundamentals (Size, Homogeneity, Durability), Trade Factors (Global, Value chain, Geographical coverage), Ease-of-doing-business (Price Control, Applicability of other laws), and Risk Management (Correlation with International Market, Seasonality, Price Volatility).
Exchanges shall adopt the indicative template as enclosed at Annexure A to bring uniformity and decide upon specific numerical weightages as approved by their oversight committee for 'Product Design'.
The exchanges shall analyze all proposed commodities/contracts on the said parameters comprised in the template and submit the same to SEBI while applying for approvals along with necessary supporting documentary evidence.
As regards commodities presently being traded, the exchanges shall apply the afore-said parameters comprised in the template on each of the commodities.
The results of such exercise is to be submitted to SEBI within a period of 3 months.
For any commodity to continue to be eligible for Futures trading, it should have annual turnover of more than `500 Crore across all National Commodity Derivatives Exchanges in at least one of the last three financial years.
Once a commodity becomes ineligible for derivatives trading due to not satisfying the retention criteria, the exchanges shall not reconsider such commodity for re-launching contract for a minimum period of one year.
A commodity which is discontinued/suspended by the exchange from derivatives trading shall not be re-considered by the concerned exchange for re-launching of derivatives contract on such commodity at least for a minimum period of one year.
The provisions of this circular shall come into effect from the date of the circular except for the provisions listed out at 3.3 above which will be effective from April 01, 2017.
This circular is issued in exercise of the 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.
The Exchanges are advised to make necessary amendments to the relevant bye-laws, rules and regulations.
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.
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Source: SecMarx — Criteria for Eligibility, Retention and re-introduction of derivative contracts on Commodities. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.