Multi Commodity Exchange of India Ltd. stock rose after brokerage house Motilal Oswal Securities Ltd. said trading volumes could “explode” due to the new framework for options trading in commodities futures.
The Securities and Exchange Board of India on Tuesday released guidelines for the product design and risk management framework. MCX could start trading in commodity options from August or September, Ashish Chopra, a research analyst at Motilal Oswal Securities wrote in a note to clients.
The top five commodities traded on the MCX in order of average daily turnover are crude oil, gold, silver, zinc, and copper. While the average daily turnover for all these commodities is over the Rs 1,000 crore SEBI-mandated threshold, the brokerage expects MCX to first launch options on gold.
Options would be permitted on commodities that are among the top five futures contracts in terms of total trading turnover value over the previous 12 months, according to SEBI’s guidelines. The average turnover would need to be at least Rs 200 crore for agricultural commodities and Rs 1,000 crore for other commodities.
A written guideline on the mechanics of Commodities Transaction Tax (CTT) levied on options is still awaited.
Volume Boost
Improvement in volumes will lead to significant market growth that drives earnings, Chopra added in the report.
MCX's average daily turnover rose to Rs 20,100 crore in June, up from Rs 18,300 crore in May. The bulk of the contribution came from crude, silver, and gold.
MCX has a monopolistic edge over the commodity markets segment with 86 percent market share. Pick-up in volumes led by the commencement of options trading should be sentimentally positive for the stock.Ashish Chopra, Research Analyst, Motilal Oswal Securities
The National Stock Exchange of India Ltd. and BSE Ltd. had sought permission to launch commodity trading on their exchanges, but both failed to get SEBI's approval.
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