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Seeking legal clarity on options trading in commodities: Sinha

Sebi chairman U K Sinha on Friday said the regulator is seeking legal clarity with respect to options trading in commodities which may require amendments to the Securities Contracts Regulations Act (SCRA) and is also in talks with the Ministry of Finance on the issue.

In a major push to strengthen the commodity derivatives market, regulator Sebi, last year, had allowed options trading on exchanges, a long pending demand of market participants. So far, only futures contracts are permitted in the commodity derivatives trading space.

"The way options in commodities is being designed the market feed back is that theoretically there are three alternatives -- the settlement should take place in physical delivery or in cash or should be settled based on price discovery," Sinha said here.

"The consensus view is that we should get along with the third option that based on price discovery that is settlement should take place based on the future price of that derivative," he added.

However, Sinha noted that the issue has entered "into a very interesting problem" on whether Sebi by itself make amendments to its regulations to allow trading in options or "does it require going back to Parliament".

"Legally we are looking at it if it can be done by amending the regulations of Sebi –the Stock Exchange Stock Exchanges and Clearing Corporation (SECC) or does it require amendment to SCRA where the word securities and derivatives are defined," Sinha said.

"In fact in the last board meeting of Sebi we had taken a proposal that the SECC regulation should be amended so that we could launch options very quickly but a view emerged in that meeting that this needs further examination from the legal point of view whether this requires an amendment of the SCRA or is Sebi is competent to do it through change in regulations ... this is the stage we are in," he added.
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