The Securities and Exchange Board of India (SEBI) has allowed exchanges established in GIFT City to introduce crude oil futures contracts, trading in which is set to commence later this month.
The inclusion of crude oil contracts at the International Financial Services Centre (IFSC) was one of the main demands by market participants who had wanted to be able to trade in the global commodity in dollar terms, with the added advantage of lower trading costs and also longer trading hours on Indian shores.
Currently, BSE’s India INX and the NSE IFSC are the two operational bourses in the special financial zone in Gujarat. While India INX started trading in January, NSE IFSC went live in June. Further, exchanges in the IFSC offer trading facilities for 22 hours.
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Currently, bourses based in GIFT City offer trading in derivatives based on indices, single stocks — both domestic and overseas — currency and bullion. All contracts are settled in dollars in IFSC. “Ever since trading started in Gift City in January, there has been a strong interest by investor community but there was this big gap in the form of crude and INR-USD contracts,” said a person involved in the regulatory discussions. “At least one demand has been fulfilled and that will lead to a big push in terms of trading turnover,” said the person, who did not wish to be identified. India INX registered a daily average turnover of almost $37 million in September. It witnessed a record high turnover of $102 million on May 5.
‘Boost liquidity’
“There is a lot of demand for crude oil contracts globally and the launch of such contracts in GIFT City will boost the liquidity,” said V. Balasubramaniam, managing director and CEO, India INX.
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India INX would offer two contracts — one with Brent crude as the underlying, and the other with WTI crude. The contract size has been fixed at 100 barrels each.
Further, DGCX (Dubai Gold and Commodities Exchange) prices would be taken into account for ascertaining the settlement price of the contracts. DGCX is the biggest derivatives exchange in the Middle East.
Trading interest in crude oil can be gauged from the fact that it is the highest traded commodity on Multi Commodity Exchange of India (MCX), the country’s largest commodity bourse in terms of market share.
In the six-month period period between April and September, the average daily turnover in crude oil contracts on the MCX was ₹5,518 crore. In comparison, the average daily turnover in gold in the same period was ₹3,153 crore.
Participants are eyeing INR-USD contracts settled in dollars as the next goal.
People familiar with the development said that while regulators had expressed concerns about allowing rupee-dollar contracts in IFSC, “constructive discussions” were ongoing with all the stakeholders.