RBI eases commodity exchange trades

However, it would shift the risk to the counter party from the exchange while the chances of default would be more, he cautioned. Under OTC trades, the counter party becomes the other party, while in the old system the counter party was the exchange through which the trading was done.

The directive also states that the corporates can cancel an option contract by entering into an opposite transaction with the same broker. Further, the corporates can use products involving simultaneous purchaseand sale of options provided there is no net receipt of premium either direct or implied.

Elaborating on this the dealer said that previously the RBI did not permit sale or writing of options, but with this measure it would be allowed subject to the premium not being excessive. Gold traders can also hedge exposure to bullion prices arising from export commitments in the London bullion market besides recognised international exchanges.

This particular measure will help the traders to better manage their price and risk exposure against the vagaries of price volatility and would not affect their profit margins to any significant extent, according to the trader.

“If you do not use this mechanism, the trader will be exposed to price volatilities,” he said.

The recent decision by the British government to sell 125 tonnes of gold this year has already triggered off a panic in the gold market with fears of plummeting gold prices.

Traders felt that the RBI measure has come at the right time so thatdomestic traders can hedge their gold exposures.