Sebi allows exchanges to modify commodity derivatives contracts

The Securities and Exchange Board of India (Sebi) has decided to give more flexibility to exchanges regarding modifying contract specifications for all commodity derivatives contracts. Changes that exchanges can make include margins, launch date, among others.

The market regulator on Thursday allowed exchanges to carry out non-material modifications and report to the regulator and market participants at least 10 days in advance.

The regulator has also allowed exchanges to modify contract specifications for material modifications for all running contracts that have ‘nil’ open interest and those yet-to-be-launched contracts. Such modifications shall require approval from the product advisory committee (PAC) and the regulatory oversight committee (ROC) of the exchange. Such changes need to be brought before Sebi and market participants at least one month ahead of their scheduled date of application.

In yet another change, Sebi has asked exchanges to get prior approval from it for material modifications, which shall require deliberations and approval from PAC and ROC before seeking regulatory approval.

“The permission to modify contract specification parameters of commodity derivatives contracts is subject to the condition that before introduction of any modification in contract specifications, the exchanges shall inform Sebi and market participants along with reasons for the modifications, according to the timeline given. However, this shall not apply to certain modifications which are required to be effected immediately, considering the exigencies of the situation, according to the surveillance measure,” said a Sebi circular.

Currently, exchanges approach Sebi for approval for changes. 

Sebi has classified non-material modifications as symbol, description, tick size, strikes, margins, etc. For material modifications with ‘nil’ open interest, the regulator has defined as last trading day, trading unit, price quote, delivery centre, premium, and discount, etc.

The third category which requires Sebi’s approval 30 days in advance with broad-based deliberations, Sebi defined as contract launch calendar, trading period, daily price limit, etc.

“The changes in contract modifications would bring in transparency. They would also have both positive and negative sides of impact. But exchanges that were implementing changes with short notice would require streamlining the process of modifications,” said Kishore Narne, associate director, Motilal Oswal Financial Services.