SEBI pondering delivery in commodities options

Market regulator Securities Exchange Board of India (SEBI) is considering delivery-based commodity options when it finalises the framework for commodity options contracts. SEBI is expected to come out with detailed guidelines for commodities options in the second week of February.

As per the proposed guidelines, the options positions will be converted into futures positions three days prior to the tender period.

Today, traders in commodity futures have a choice of taking delivery of the commodities they are trading. The tendering period is five days preceding expiry as this is when there is maximum trading activity as traders decide on the settlement mode, i.e. physical or cash.

After finalising the guidelines in the first week of February, SEBI will submit it for review, ahead of its next board meeting in the second week of February. However, SEBI will allow only one product from each exchange. Further, based on the response, it will consider more approvals. The position limit for options contracts is likely to be three times that for futures contracts to allow big traders to hedge their positions.