Sebi to Ease Derivative Rules
India's market regulator to partly reverse derivative settlement rules after pushback from stakeholders, aiming to improve liquidity and depth in commodity markets. Sebi chairman Tuhin Kanta Pandey announced the move, citing the need for market design to allow contracts to gain scale.
Global Newsflix 2 min read
Sebi is examining position limits for non-agricultural contracts to improve liquidity and depth without weakening risk controls, according to Pandey. He said the regulator has completed consultations on the matter and guidelines will follow.
Pandey noted that in some agricultural commodities, physical settlement from the outset can impede market development, and a phased approach could allow contracts to mature before physical settlement becomes mandatory.
The regulator is also working to reduce structural friction in commodity markets, including engaging with stakeholders on GST-related issues affecting participants who give or receive commodities through exchange platforms.
Pandey emphasized the importance of technology serving the specific needs of commodity markets, which include producers, commercial users, farmers, processors, and physical hedgers.
Sebi will strengthen efforts under Project Jagrook to spread awareness about commodity derivatives among farmers, farmer producer organisations, MSMEs, hedgers, and other market users, Pandey said.
The Sebi board approved a proposal last month to allow foreign portfolio investors to participate in physically settled, non-agricultural commodity derivative contracts, subject to safeguards.
Pandey stressed that simpler regulation should not mean weaker compliance, and strong controls over client funds, margins, reporting, and supervision remain fundamental.
Key facts
- Sebi to partly reverse derivative settlement rules
- Position limits for non-agricultural contracts to be examined
- Phased approach to physical settlement for agricultural commodities
- Sebi to strengthen awareness efforts under Project Jagrook
Three perspectives
Neutral
The move is seen as an attempt to balance the needs of stakeholders and improve market liquidity. Sebi's efforts to reduce structural friction and increase awareness are expected to have a positive impact on the commodity markets. The regulator's decision will be closely watched by market participants.
Positive
The easing of derivative rules is expected to boost liquidity and depth in commodity markets, making it easier for stakeholders to participate. Sebi's efforts to improve awareness and reduce friction will also help to increase participation and improve market efficiency.
Negative
Some stakeholders may be concerned that the easing of derivative rules could lead to increased risk and volatility in the markets. Sebi's decision may also be seen as a response to pressure from stakeholders, rather than a proactive move to improve market efficiency.
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