MCX to launch market making in 'options on goods' in gold mini

Representative image

Multi Commodity Exchange of India on Wednesday said it will launch a liquidity enhancement scheme in the newly launched segment 'options on goods' with gold mini contract.

The liquidity enhancement scheme, popularly known as market making, will start from September 1, MCX said in a circular.

"The Exchange, based on a competitive bidding process, will appoint the lowest (qualified) bidder in terms of 'bid incentive amount' as a single designated market maker for the product till the scheme remains in force. The maximum incentive bid amount is Rs 40 lakh per month,” the exchange circular added.

The Securities and Exchange Board of India had allowed a liquidity enhancement scheme in 2018.

Under the scheme, brokers and other market intermediaries are given incentives to bring in liquidity and generate investor interest in securities for a specified period of time.

MCX, which had launched options on futures in gold in 2017, had successfully experimented with market making in the contract in April-October 2018.

The average daily turnover in the gold options on futures, which was around Rs 82 crore during six months prior to introduction of the market making in the contract, shot up to Rs 791 crore during the six-months of the market making.

The options on goods segment is much easier a product from traders' perspective and market making is likely to brighten the prospects of gold mini contract, particularly due to unprecedented interest in bullion trading due to the global rally to record in gold, MCX said.