Commodity Market Work in India
Commodities were permitted in 2001 and in 2002, the MCX and the NCDEX started functioning. However, the volumes picked up very sharply only in select commodities. To begin with, the commodity exchanges were only offering futures on commodities. However, being a commodity market, the commodity futures offered speculation-based trading and delivery-based trading. That means the exchange had tie-ups with warehouses to supply the underlying commodity at an assured price to the two parties. The risk belonged to the two parties and the exchange was only a facilitating platform.
In terms of regulation, the commodity markets were regulated under the aegis of the Forward Market Commission or FMC till 2015. After the National Spot Exchange (NSEL) scam in 2013, there was a major furor over the functioning and regulation of the FMC and subsequently, the regulation of the commodity futures market was fully transferred to SEBI. Since 2015, it is the Securities and Exchange Board of India (SEBI) has been regulating the commodity markets. Commodity trading in these exchanges requires standard agreements as per the instructions so that trades can be executed without visual inspection. In general. Like in any futures exchange, the trades on the commodity futures exchanges are also standardized in terms of quality, lot sizes, delivery dates, expiry, etc so that entry and exit become simple.
The trading in commodity options was introduced in 2017, but it is yet to take off in a big way although the traction is visible in several commodities. In India, the volumes on options are predominantly the volumes on options on commodity futures and not on spot commodities. That is the difference between trading options in commodities in the Indian context.