NSE get SEBI nod to launch WTI Crude Oil and Natural Gas futures contracts

The Securities & Exchange Board of India (SEBI) on Wednesday allowed the National Stock Exchange (NSE), the largest stock exchange in India, authorization to introduce futures contracts for NYMEX WTI Crude Oil and Natural Gas (Henry Hub) in its Commodity derivatives section. The approval would enable NSE to market rupee-denominated derivative contracts for Indian market players in major international benchmarks.

A data licence deal between NSE and CME Group was reached on February 15th, enabling NSE to market, trade, and settle derivatives contracts for NYMEX WTI Crude Oil and Natural Gas (Henry Hub) on its platform. These new contracts will broaden NSE’s product selection throughout its broader commodity category, including the Energy component. “These contracts are designed to provide the market participants with a more efficient way to manage their price risk,” said NSE in a statement.

Shri Sriram Krishnan, Chief Business Development Officer, NSE said: “It gives us immense pleasure to inform the market participants that NSE has received the regulatory approvals to launch the NYMEX WTI Crude Oil and Natural Gas futures contracts. It has always been our objective to provide the market participants with a suite of dynamic & robust financial products. We hope that it provides the market participants with an efficient avenue to hedge their price risk and meet their trading objectives. We will announce the launch date of these contracts soon.”

Praveen Singh – AVP, Fundamental currencies and Commodities analyst at Sharekhan by BNP Paribas said “NSE receiving regulatory nod to launch WTI crude oil and natural gas futures will offer traders more opportunities to trade in these commodities; however, these contracts are already quite liquid and active on MCX. So, NSE will have to compete with MCX for the market share of trading volumes in these commodities.”

“It is to be noted that MCX is going to launch crude oil mini (10 barrels) futures contracts from March 3, which is a much needed step for both the exchange and the clients as traders will be able to take advantage of reduced lot size, which would help them manage and reduce their risks as crude oil is a highly volatile counter. The regular lot size is 100 barrels,” added Praveen Singh.

“In line with the inherent logic and usefulness of mini crude oil futures, the exchanges may look at launching mini natural gas futures as present MCX trading unit of natural gas is 1250 mmBTu, which is quite huge. Mini natural gas futures contract will help traders manage and reduce their risks as natural gas is one of the most volatile commodities. It can easily move up or down more than 10% in a day,” Praveen Singh further added.

“After a delay caused by the regulatory review process, the NSE got regulatory approval to introduce futures contracts for WTI Crude Oil and Natural Gas in November 2021. The introduction offers Indian investors a new investment opportunity to diversify their portfolios and hedge against commodity price risk. It also decreases reliance on global exchanges and boosts market liquidity in India, resulting in more effective pricing of key commodities in the country. That is a significant step for the financial markets and economy of India,” said Sonam Chandwani, Managing Partner KS Legal & Associates.

By – Divam Sharma, Founder at Green Portfolio, SEBI Registered Portfolio Management Service Provider said “This is a major step providing investors with access to energy products including crude oil and natural gas. Till now there were very limited options for domestic investors to participate in these commodities. We have seen significant opportunities come up in Covid times when crude was very volatile. This product will also allow businesses to hedge their price risks. This is another feather in the cap for Indian markets to attract investor participation.”

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Green Portfolio Team

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