Every year, exchanges introduce new futures contracts in the hope that these contracts will garner volumes. However, a majority of these contracts fail within a short span. The purpose of this study is to revisit the determinants of a successful futures contract, with a focus on agricultural commodity futures contracts traded in India. This issue directly impacts the viability and introduction of futures and options contracts for varying commodity classes. The main question discussed is whether the success of a commodity futures contract is more a matter of chance than a science. The critical issue is whether an exhaustive checklist of criteria such as the one proposed by the Securities and Exchange Board of India (SEBI) guarantees a successful contract, or there is a need to explore and understand the inherent need that a successful contract satisfies. Using panel random-effects model on 30 agricultural futures contracts that are traded on the National Commodity Derivative Exchange (NCDEX) in India from 2003 to 2016, I find that volatility in spot prices is the most crucial determinant, followed by hedging effectiveness and liquidity (open interest) of the futures contract; whereas the size of the underlying spot market, compulsory settlement, and government-imposed ban negatively impact the success of the agriculture futures contract. Contrary to the findings reported in prior studies, activeness of the spot market, basis risk, and homogeneity of the commodity did not prove to be significant in this study. The findings have important implications for policymakers and exchanges with respect to liquidity, market design, and new product launches.
