Chennai, Sep 28 : The Securities and Exchange Board of India (SEBI) on Wednesday permitted options in the commodity derivatives market.

In a circular issued on Wednesday, the markets regulator said it had been decided that commodity derivates exchanges shall be permitted to introduce trading in 'options'.

"The commodity derivatives exchanges, willing to start trading in options contracts, shall take prior approval of SEBI for which detailed guidelines will be issued in due course," the circular said.

Simply put an option contract between buyer and seller. Under the contract, the buyer purchases the option to buy or sell a particular asset or commodity at a later date at an agreed price.

The SEBI circular also asked the exchanges to inform its members about trading in options; take necessary steps to amend its by-laws and also communicate with the regulator the status of implementing the provisions of the circular.

Finance Minister Arun Jaitley in his budget speech for 2016-17 announced that "new derivative products will be developed by SEBI in the Commodity Derivatives market".

Following that the SEBI set up a committee of experts known as Commodity Derivatives Advisory Committee (CDAC) to advise SEBI on matters concerning effective regulation and development of the commodity derivatives market.