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NCDEX plans for commodity derivatives to address volatile agriculture crop prices, NPAs

06 Sep 2018 Evaluate

National Commodity & Derivatives Exchange's (NCDEX) managing director & CEO, Vijay Kumar V said they are planning to make commodity derivatives, more importantly options, a tool to address non-performing assets (NPAs) and volatile agriculture crop prices. He told banks, market participants and farmer organisations to use commodity options similar to an insurance policy and hedge their positions by locking minimum profits.

NCDEX will propose to the regulator to allow options in more agri commodities like chana, soyabean and castor seed, among others, as underlying futures in these commodities are fairly liquid. It also proposes to make soya refined oil a deliverable contract and launch deliverable metals futures. The cost of buying option is minimal but if the price direction goes against what has been anticipated, then the option will help in capping the profit and protect farmers from falling prices.

Kumar said ‘We have proposed appropriate changes to the market regulator to make options more market friendly. This will help the option seller who is willing to give delivery and smoothen the process. For giving delivery, he will comply with all norms and does not have to hold futures positions on option expiry and still wait for staggered delivery period. This way, the option becomes a virtual insurance policy and the option premium is like policy premium.’

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