The Securities and Exchange Board of India (SEBI) has exempted its regulator fee from the exchange for this initiative to support FPOs/farmers’ participation in the derivatives market. The contract of options would be settled only through compulsory delivery on the day of the expiry. The quality specifications, delivery centers, final settlement, price methodology, trading hours, etc. provided in the options contracts will be similar to the futures contracts of the commodity.

Vijay Kumar, MD & CEO of National Commodity and Derivatives Exchange (NCDEX), spoke that through the options contract, SEBI is offering farmers a tool to secure market price for their crop at the time of sowing itself. While at the same time, their right to gain when the price rises. Also, as the premium is known in advance, the FPOs can factor it in their cost of cultivation. This will help FPOs and the farmers in calculating their return while also taking optimal decisions while selecting new crops for sowing. NCDEX is associated with many FPOs, and their list is ever-growing. Some of them have already experienced the comfort and benefits of Options trading.

These tools will also be helpful for banks and other financial institutions, which extend commodity finance to farmers and take a risk if prices go down. This tool can be used as a price protection measure to give much-needed protection to both the lender and borrower.