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SEBI moots creating commodity indices

SEBI moots creating commodity indices

The Securities and Exchange Board of India (SEBI) has proposed allowing commodity exchanges to create indices on which futures contracts can be introduced.

Such indices can be based on the most liquid contracts traded on the bourses and have to be diversified with the weightage of a single constituent capped at 20%.

Benefit

Index-based products will also encourage the participation of institutions such as mutual funds, insurance companies etc., in the commodity derivatives market.

What is index in financial markets?

In its most regularly traded format, an index is defined as a portfolio of stocks that represents a particular market or market sector. Most major economies as well as developing economies have at least one financial index.

For example, The NIFTY 50 index is National Stock Exchange of India's benchmark broad based stock market index for the Indian equity market.

It represents the weighted average of 50 Indian company stocks in 12 sectors and is one of the two main stock indices used in India, the other being the BSE Sensex.

Similarly, BSE SENSEX is a free float market weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange.

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