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crude oil derivatives

Rahul (Company Secretary & Manager-Legal) (216 Points)

17 December 2008

Dear members plz resolve these following queries...

1.Companies issue shares but who issues derivatives?? Is it the stock exchange? Who designs such instruments?

2.Who issues oil/crudeoil derivatives?

3What is the parent act governing derivatives (crude oil derivatives?)

4.Are commodity derivatives not regulated by SEBI like equity/index derivatives?

5. Is crude oil derivatives governed by FCRA Act 1952?

thanks & regards,

rathindra

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5 Replies

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 17 December 2008

Rathindra firstly i would like to rectified one thing.. Globally oil is listed only in the New York Stock Exchange.. No body else has got authorisation in Oil trading and price of Oil in the exchange is operated by Goldman Sachs, Citi Bank, Morgan Stanley and J.P.Morgan Chase

But globally price is operated by OPEC

Indian stock exchange have nothing to do with Oil price

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Rahul (Company Secretary & Manager-Legal) (216 Points)
Replied 17 December 2008

Dear Amit.

thanx for your reply.

but i m not looking for listing of Oil etc.

in India, ON MCX & NCDEX, oil derivatives are available for trading.

my question is,

1. who issues them? MCX/NCDEX or any other authority?

2. under which ACT/RULES/REGU. they are governed?

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 17 December 2008

Are you sure oil derivatives trading are available ?

Can you give me the link ?

Rahul (Company Secretary & Manager-Legal) (216 Points)
Replied 17 December 2008

mcx.com

ncdex.com

look up in the products section..

LAKSHMINARAYANAN (STUDENT) (60 Points)
Replied 17 December 2008

Dear,

The Derivatives is controlled by Securites contract regulation act 1956 from 2000 onwards. (since it is financialy setteled, so there is no part of FCRA)

Yes, As Rathindra said crude oil can be traded at MCX,NCDEX , which is derivative.

1.Companies issue shares but who issues derivatives?? Is it the stock exchange? Who designs such instruments?-Based on the company outstanding share the exchange will allow to buy and sell in derivatives, but there will no physical/demat shares. Derivatives are all cash setteled.

Than why derivatives, to manage risk from price averse.

Say HPCL will take delivery of 100 metric ton of crude, if price get above 100 per barrel then hpcl under margin presure, so they will buy at nymex in derivatives at 100 per parrel. so if price moves above 100 per barrel , hpcl need not to worry.

In reverse, OPEC people will enter in selling contract at 100 per parrel, so if any price reduction opec will be protected from their loss.

In middle as he said institutions are also playing in this derivative game, and they have lost in housing sector and also in this sector as large.

Assume if some entered at crude contract at 140 per parrel..that how much they would have lost.

Normaly in derivative all future prices based on spot price, in the case of crude irrespective of spot price expected demand,supply,growth,defict of such factor oil companies, institutions will take participation.

Hence, OPEC will look this nymex prices and reduce the production quata and increse the price. (so they benefited)

2.Who issues oil/crudeoil derivatives? (as i said no issue, only allowed to trade.

3What is the parent act governing derivatives (crude oil derivatives?) Financial derivatives-SCRA, if taking delivery-FCRA.

4.Are commodity derivatives not regulated by SEBI like equity/index derivatives?-iT IS regulated by SEBI.

Regards,

Lakshminarayanan