Sebi extends futures trading ban on seven agri-commodities till Jan 2025

Shorter extension tenure kindles hope of early resumption of futures in some commodities

The Securities and Exchange Board of India (Sebi) has extended the suspension of trading in derivative contracts for seven agricultural commodities till January 31, 2025.

 

However, trade sources noted that, unlike in the past, this time the extension is for just over a month. This has sparked hope that futures trading in some agricultural commodities, particularly those belonging to the edible oil complex (such as crude palm oil and soybean derivatives), might resume in the near future.

 

According to a late-night notification, the suspension in futures trading for the seven commodities — namely paddy (non-basmati), wheat, chana, mustard seed and its derivatives, soybean and its derivatives, crude palm oil, and moong — was set to expire on December 20, 2024. However, just a day before the expiry, the suspension was extended.

 

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Sebi had first announced the suspension of derivatives trading for five commodities or commodity groups (wheat, soybean, crude palm oil, paddy, and moong) in December 2021, effective for one year. Later, it extended the suspension to include chana on August 17, 2021, and mustard seed/mustard oil futures on October 8, 2021.

 

Since then, the market regulator has been regularly extending the ban, with the most recent extension running until December 20, 2024.

 

Sebi’s press release did not mention the reasons for either the original suspension or the extension. However, it is widely believed that the suspension was aimed at curbing rising commodity prices.

 

“I think the regulator was partly to blame for suspending derivatives trading in the first place. It should have focused on stricter margins and circuit breakers. Now that oilseed prices have crashed in domestic markets, resuming futures trading would provide much-needed support to the prices,” a senior industry official said.

 

Recent studies conducted by academicians from reputed institutions such as the Birla Institute of Management Technology (BIMTECH), the Vinod Gupta School of Management at IIT-Kharagpur, and the Shailesh J Mehta School of Management at IIT-Bombay have uniformly found that retail prices for none of the suspended commodities decreased after the ban.

 

In contrast, the volatility of many of these commodities rose significantly following the suspension of futures trading. The findings reiterated that retail prices of commodities are driven by domestic and international demand and supply dynamics, rather than futures trading.