- The Securities and Exchange Board of India (SEBI) has permitted stock exchanges with commodity derivative segment to introduce futures on commodity indices.
- The stock exchanges willing to start trading in futures on commodity indices are required to take prior approval for launching such contracts.
- SEBI has also directed the stock exchanges to submit proposal with contract specifications and risk management framework for approval before launching any futures contract on an index.
- Commodity derivatives are financial instruments whose value is based on underlying commodities such as oil, gas, metals, agricultural products and minerals.
- A commodity futures contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future.
- Buyers use such contracts to avoid the risks associated with the price fluctuations of a futures underlying product or raw material.Sellers use futures contracts to lock in guaranteed prices for their products.
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