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Informist, Tuesday, May 12, 2026

 

--SEBI mulls physical settlement in some agri commodity derivatives contracts 

 

MUMBAI – The Securities and Exchange Board of India on Tuesday proposed permitting exchanges to introduce some delivery-based agricultural commodity derivatives contracts on a pilot basis. Such contracts will commence trading as financially settled contracts and mandatorily transition into physically settled contracts upon the occurrence of predefined objective thresholds, the regulator said in a consultation paper. 

 

These contracts will be exempt from settlement via physical delivery until the contract crosses a certain average daily traded volume or open interest after two years, whichever is earlier, according to the consultation paper. The proposed framework seeks to balance these considerations by allowing temporary flexibility in settlement methodology, while reaffirming physical settlement as the eventual and mandatory outcome.

 

Allowing contracts to initially operate as financially settled instruments provides market participants with an opportunity to understand contract behaviour and price dynamics before being exposed to delivery obligations, it said. In the case of newly introduced or thinly traded agricultural contracts, compulsory physical settlement from inception may unintentionally restrict participation to a narrow set of market participants who are operationally capable of taking or giving delivery. This can slow liquidity formation and weaken the price-discovery function in the early stages of a contract's life.

 

The proposed approach does not represent a shift away from physical settlement as a regulatory principle. Contracts will be designed as delivery-based instruments from inception, with full specifications for quality, delivery centres, and settlement procedures, SEBI said. 

 

The regulator has sought feedback on the proposals by Jun. 2.  End

 

Reported by Taniva Singha Roy

Edited by Saji George Titus

 

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