Monday, April 26, 2010

Introduction of Futures on GOLD BEES

NSE is introducing Futures & Option on GOLD BEES (Gold Bees is an ETF with underlying as gold) from 30th April, 2010.

It is a good step on the part on NSE & It will increase volumes in the market. The traders will be able to take position on gold using Equity market.

The Option to be introduced will be European option; FUTETF will be for the Futures. It will open plethora of Arbitrage opportunities between Futures, Spot, ETF , NCDEX, MCX & International Gold Prices.

It is a clever move by NSE to increase volumes, and also cross selling of its IISL products.

But Does it also mean that NSE is creating an indirect business for benchmark mutual fund,  as there are other gold ETF in India (Including Reliance, Kotak & SBI) which are not introduced in F&O segment. Also because of this Benchmark will be able to sell its other ETF and Mutual funds products.

Also it is an indirect entry of Option in Commodity trading which is still not prevalent in commodities market,  Also FMC & MCX may cry foul. Also it would mean there can be ETF on all other underlying commodities (Silver, Crude, Zinc etc) where there is huge speculative interest in MCX & NCDEX or it should be seen as a precursor of introduction of Options in commodities market..

Also one critical issue will be valuation of its Expiration price, The exchange say that all contracts will be settled at NAV declared by Benchmark. But Benchmark's process of valuation is not precise and there can be probability of mis-pricing , as they carry physical gold and  value it on LMBA price. Also current spot prices in Indian market are not considered which often quotes at premium or discount to International prices. Also the NAV is declared by Benchmark late in evening and not at the close of our market. Does that mean we carry a blind risk of settlement price for almost 4 hours after the closing price.

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