The National Commodity and Derivatives Exchange (NCDEX), a prominent futures exchange in India, is poised to ink a memorandum of understanding (MoU) with the Maharashtra state government. This agreement aims to offer subsidies to turmeric cultivators, facilitating their participation in options trading.
Maharashtra has allocated funds
These subsidies will specifically target “put” options trading and will be routed through farmer-producer organizations (FPOs). The Maharashtra government has allocated funds for this purpose, and the MoU is set to be formalized shortly, according to the sources.
NCDEX is also in discussions with Andhra Pradesh to initiate a similar program for subsidizing farmers’ participation in options trading through FPOs. While progress in Andhra Pradesh has been somewhat sluggish, Maharashtra is steadily advancing with the initiative.
FPOs have exhibited some hesitance in engaging in put options trading, mainly due to the requirement of convincing their boards and limited awareness of the associated benefits. NCDEX is actively working to encourage FPOs and is seeking Nabard’s assistance in financing their entry into this domain.
NCDEX views enabling farmers to partake in put options as a supplementary effort to reinforce the government’s Minimum Support Price (MSP) system for agricultural produce. Participants will be required to furnish an upfront margin or premium, typically around 4-5% of the commodity’s price involved in the contract.
Farmers engaged in put options will not incur losses, ensuring their produce is sold at or above the MSP. NCDEX suggests initially providing subsidies to farmers entering the options market. As they gain confidence and experience, these subsidies can be gradually reduced, potentially to 60%, 30%, and beyond, over time.
Subject to regulatory approvals, NCDEX has expansion plans in the derivatives market, introducing trading in two or three new products. Sunflower oil futures are the first in line, with the proposal already submitted to regulators. Additionally, NCDEX is gearing up to propose derivatives trading in carbon credits, further diversifying its portfolio.
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