The Securities and Exchange Board of India (SEBI) has issued a consultation proposal to permit stock exchanges to adopt a phased approach to physical settlement for select agricultural commodity derivatives contracts.
1. Key Proposal
Under the proposed framework:
- Stock exchanges would be allowed to:
-
- Revive existing illiquid contracts, and/or
- Launch new delivery-based contracts
- For select agricultural commodities
2. Initial Financial Settlement Mechanism
- Such contracts would initially commence trading as Financially settled contracts
- Physical settlement may subsequently be introduced in a phased manner
3. Objective of the Proposal
The move aims to:
- Improve liquidity in agricultural commodity derivatives
- Encourage revival of inactive commodity contracts
- Facilitate better market participation and price discovery
4. Expected Benefits
The phased approach may:
- Reduce operational challenges associated with immediate physical settlement
- Allow market participants to gradually adapt to delivery-based mechanisms
- Strengthen development of agricultural commodity derivatives markets
5. Stakeholder Consultation
- SEBI has invited comments from stakeholders
- Comments may be submitted until 2 June 2026
6. Conclusion
SEBI’s proposal seeks to balance market development and operational feasibility by introducing a gradual transition towards physical settlement for agricultural commodity derivative contracts, with the broader objective of improving liquidity and market efficiency.
