Mumbai: The Securities and Exchange Board of India (Sebi) proposes allowing select agricultural commodity derivatives contracts to trade initially as cash-settled instruments before shifting to mandatory physical settlement.
Pilot Framework for Exchanges
Exchanges gain permission on a pilot basis to launch or revive delivery-based agricultural contracts. These start as financially settled products and transition to compulsory physical settlement once they meet specific thresholds, including average daily traded volume, open interest levels, or a two-year period.
Addressing Liquidity Challenges
Liquidity in many agricultural contracts stays limited, particularly during launch or relaunch phases. Low trading volumes and restricted open interest erode market confidence, which discourages further participation and creates a negative cycle. While accredited warehouses and assaying systems have grown, their use remains low for certain commodities.
Candidate Commodities
Sebi suggests testing the framework with a few commodities on a pilot basis, such as maize, groundnut, and chilli.
Enhanced Position Limits
In a related move, Sebi plans to double client-level open position limits across all categories of agricultural commodities.
