Sebi may review agricultural commodity classification, margin framework

Move aimed at boosting participation in the commodity derivatives market

The Securities and Exchange Board of India (Sebi) is considering a series of measures aimed at boosting participation in the commodity derivatives market, including revising the definition of agricultural commodity classification, reworking market-wide position limits, and reviewing the margin framework, according to sources familiar with the discussions. 

The proposals were discussed recently by Sebi’s Commodity Derivatives Advisory Committee (CDAC), which reviewed reports submitted by multiple working groups set up to re-examine the existing delivery and settlement framework. 

Discussions also centred on the prolonged trading ban on derivatives of seven key agri-commodities — wheat, chana, mustard seeds, soybean, moong, non-basmati paddy, and crude palm oil — and possible measures to facilitate their return to trading platforms. The derivatives ban, first imposed in December 2021, has been extended annually and is currently in place until March 2026. 

According to people aware of the developments, one of the key proposals involves updating the definition of agri-commodities, which are currently classified as sensitive, broad, or narrow based on production levels, deliverable supply, and susceptibility to government intervention. These classifications play a crucial role in determining position limits. The regulator is also evaluating member-level position limits and may revisit the penalty structure for breaches. 

“There are issues in the margining system that need reworking. In several agri-commodities, the market-wide position limits available to members and clients are relatively small, leading to frequent and often unintentional breaches during the month. The penalty for such inadvertent breaches may be reconsidered,” said a source. 

Sebi is expected to soon issue a consultation paper, outlining the proposed changes. After discussions with industry stakeholders, draft proposals are typically opened for public comments before being taken to the board for approval.

Emailed queries sent to Sebi did not elicit a response till press time. 

In February, Sebi Chairman Tuhin Kanta Pandey had said the regulator was working with relevant government ministries to review the ongoing ban on agri-commodity derivatives. With the current extension valid until March 2026, sources indicated that some relief could be considered during the next review. 

“The measures are part of broader initiatives by the Sebi chairman to expand the commodities market and address structural pain points. Several working groups were constituted to recommend steps to deepen participation in the segment,” said a market participant. 

Separately, Sebi has also formed a committee to review norms governing non-agricultural commodity derivatives, where foreign portfolio investor (FPI) participation remains largely concentrated in energy and cash-settled contracts.