BSE, NSE to offer options on gold, silver from June

In an attempt to increase their market share in the commodity derivatives segment, dominated by MCX, NSE and BSE are launching options on underlying commodities like gold Mini (NSE & BSE) and silver kilo (BSE) next month. NSE will also be offering market making on its gold mini contracts under the liquidity enhancement scheme, approved by market regulator Sebi.

NSE will launch options on gold mini on June 8, while BSE will offer options on gold mini and silver kilo contracts from June 1.

They will compete with MCX, the stock exchange that runs the largest metals and energy commodity derivatives segment (CDS) and has almost 94% market share in the CDS in FY20. Around 5% of the market was held by agri bourse NCDEX and the remaining 1% was accounted for by BSE, ICEX and NSE in that order.

MCX has already launched options in gold, silver and crude oil. But these are options on futures, where the option devolves into a futures contract on a specified date. NSE and BSE will offer options on the underlying gold and silver contracts.

Both gold mini contracts which either exchange is offering will have Ahmedabad as basis centre while BSE’s silver contract will also be ex-Ahmedabad.

“This is the first time that a domestic exchange is launching trading in options on physical gold," said Ravi Varanasi, chief business development officer at NSE. “Investors are now seeking the safety of their investments. Gold has always played the role of safe harbour asset. This options product provides excellent hedge and trading possibilities in gold during these uncertain times.”

Naveen Mathur, Director, Anand Rathi Share & Stock Brokers, said if "handled well", both NSE and BSE could "attract" participants to their new products.

The options will be European style, which can be exercised only upon expiry. An option facilitates the purchase or sale of an underlier at a fixed price for delivery on a future date. The option buyer has a right but not the obligation to take or give delivery but the option seller is obligated to give or take delivery.

The details of the respective circulars are available here.