Traders may get cash-settled gold and silver futures on Indian commodity exchange


By Ram Sahga
The Times of India
Wednesday, June 3, 2015

MUMBAI -- Domestic punters and hedgers in gold and silver futures might soon be able to play similar contracts that are traded on CME Group, the world's largest derivatives marketplace, but denominated in rupees on the Multi-Commodity Exchange (MCX), the country's largest commodity bourse, subject to regulatory approval.

Unlike existing gold and silver contracts that are compulsorily settled at the average of three days' spot price in Ahmedabad, the new contracts will be cash settled at the CME relevant rate multiplied by the rupee exchange rate, said two persons aware of the development. "This will be helpful to those who don't want delivery but just to hedge or speculate. Approval of Forward Markets Commission, or FMC, is awaited," they added.

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On MCX the kilo gold contract is settled once in two months. The contract enters the delivery period on the first of the expiry month while delivery takes place on the fifth. However, once the contract enters delivery period, the margin to trade jumps to 25 per cent of open position, which is substantial, leading to many hedgers and punters simply rolling over their positions or squaring off pre-delivery. In the new contract, this might not be the case since it is cash-settled.

"Clients in such case will not be forced to roll over or cut out their positions before delivery period," said one of them cited earlier.

MCX has an agreement in place with CME for using its benchmark prices in metals and energy contracts. The new contracts would be similar to Gold Hedge launched by MCX rival NCDEX in January 2014 to raise its turnover by diversifying into non-farm products. However, gold hedge, as per data for May, seldom crosses Rs.100 crore turnover on the predominantly farm futures bourse.

MCX, on the other hand, recorded turnover of Rs.4,000-5,000 crore a day in gold over the same period. Gold is also delivered on MCX. In April, 445 kilos valued at Rs.117 crore was delivered on MCX.

"The thinking is that these contracts will gain better traction on MCX which is a metals and energy bourse where maximum trading in bullion futures happens here," said the other person.

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