Trading Current Affairs

MCX gets SEBI approval to launch India’s first gold options contract

Commodity derivatives bourse Multi Commodity Exchange Ltd (MCX) has received markets regulator Securities and Exchange Board of India’s (SEBI) approval to launch India’s first gold options contract.

The gold futures contract will have bi-monthly duration. The option will also have the existing gold kilo futures contract as its underlier.

Key Facts

The launch of gold options is one of the major reforms SEBI has taken for the commodity derivatives market.  Earlier in June 2017, SEBI had allowed options trading in commodities to deepen the market but permitted each exchange to launch options on futures of only one commodity initially.

SEBI is going to put strict eligibility criteria and options could be launched on futures contract of only those commodities that are among the top five in terms of total trading turnover value of previous 12 months. It also has stipulated necessary guidelines with regard to the product design and risk management framework to be adopted for trading in options on commodity futures.

About Multi Commodity Exchange Ltd (MCX)

The MCX is the country’s largest metals and energy commodity bourse. It is country’s first listed commodity futures exchange that facilitates online trading, and clearing and settlement of commodity futures transactions, thereby providing a platform for risk management.

It began functioning in November 2003 and operates within the regulatory framework of the Forward Contracts Regulation Act, 1952 (FCRA, 1952). It offers futures trading in bullion, ferrous and non-ferrous metals, energy, and a number of agricultural commodities (mentha oil, cardamom, potatoes, palm oil and others). Globally, MCX ranks no. 1 in silver, no. 2 in natural gas, no. 3 in crude oil and gold in futures trading.

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SEBI bars 59 entities from trading for manipulating markets and evading taxes

The Securities and Exchange Board of India (SEBI) has barred 59 entities from trading in Bombay Stock Exchange due to alleged manipulation of the stock exchange route for evading taxes.

As per the order of SEBI these 59 entities will not conduct any activity of trading, buying, selling or dealing in the securities markets, either directly or indirectly.

The regulator took this strict action in wake of market manipulator’s action of evading taxes or converting black money into ‘white’ through the route of stock exchange.

SEBI has also referred to income tax department, enforcement directorate and financial intelligence unit for investigating a probable money laundering scheme.

The regulator’s surveillance system detected huge trade in low-value illiquid stocks, the stocks which cannot be sold quickly due to a shortage of interested buyers or a lack of an established trading market. Examples of illiquid stocks are penny stocks, microcap stocks and nanocap stocks.

Why illiquid stocks Matters?

Illiquid assets are considered more risky than liquid assets as during periods of market volatility there are very fewer buyers than sellers and thus the illiquid assets become even more difficult to sell. To sell these illiquid assets holders discounts to the asking price to attract potential buyers which results into zero value of that stock at certain points in time.

How Black to White?

The companies with poor financial fundamental raises huge capita by allotting preferential shares to various entities. This results into sharp rise of their shares price, these artificially inflated stocks are offloaded through companies funded by those seeking to convert unaccounted money into ‘white’ money.

Note: So far SEBI has issued around 10 orders and has suspended trading licence of 36 companies involved in allegedly irregular trades and has barred over 900 entities from trading.

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