India to allow commodity options; opens the door for weather derivatives

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India’s government cabinet have today approved changes to the laws which allow commodity trading in the country. The laws have been in place and allowed trading of commodity futures since 2003. The new change to the law will allow commodity options to be traded on exchanges within the country.

This long awaited move now opens the door for weather derivatives to be traded on exchanges in India. The country already has a burgeoning weather risk management marketplace, helped by high profile weather-index insurance pilots which have been undertaken by microfinance providers. This should see weather derivatives be accepted more readily we believe.

The only drawback left is that institutional players are not allowed to participate in India’s commodity markets. If that changes then a weather market could take off more quickly.

It’s now down to the exchanges and bourses to get new products up and running. We expect to see weather derivatives emerge as a tradeable commodity within the year.

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