“In diversifying derivative instruments, the IME has conducted feasibility studies and prepared infrastructure to launch gold-backed ETF futures,” Alireza Nasser-Pour was quoted as saying by the Securities and Exchange News Agency.
The first gold EFT futures will make debut on July 3, Naser-Pour said, adding that the IME has already launched two other gold-related financial instruments to enable safe investment in gold.
A futures contract is a standardized, legal agreement to buy or sell an asset at a predetermined price at a specified time in the future. At the specified date, the buyer must purchase the asset and the seller must sell at the agreed-upon price, regardless of the current market price at the expiration date of the contract.
Underlying assets for futures contracts can be commodities–such as crude oil, commodities, agricultural products, or other financial instruments.
Gold ETF and gold-backed certificates of deposits are two major instruments currently operational at the IME. The exchange in the past had offered gold futures (using gold coins as underlying assets) for years but suspended such the practice in 2018 reportedly due to its impact on physical gold prices in the domestic bullion market.
The commodity bourse started trading in gold futures in 2008. IME added gold certificates of deposit to its arsenal in Feb 2017.
Certificates of deposit are securities that show ownership of underlying assets that are usually kept with a certified third party. The owner of the gold certificate gets to save money on gold trading, delivery, storage and insurance costs.
On the merits of such instruments, Naser-Pour said they minimize risks of counterfeit gold as seen in the spot market. In addition, trading costs in these instruments are lower compared to other markets.
As for other advantages, the official pointed to the properties of the future contracts to help investors hedge risk against price movements of underlying assets.
The IME earlier launched future contracts for silver and key agricultural products such as saffron, pistachio and cumin.
As per a notice published on the IME website, first gold ETF futures will make debut by Lotus Gold Fund for August delivery.
Accordingly, each contract will be backed by 1,000 units of gold fund and investors can deal in maximum 25 futures per day with daily price limits at ± 5%.
According to Naser-Pour, online access will be available to investors of derivative instruments. Founded in 2006, IME trades in agricultural, industrial and petrochemicals in the spot and futures markets.