Sebi to Review Position Limits for Non-Agricultural Commodity Derivatives
Sebi Chairman Tuhin Kanta Pandey said the regulator is examining position limits for non-agricultural commodity derivatives to boost liquidity and market depth.
Sebi is reviewing position limits for non-agricultural commodity contracts to improve liquidity and market depth without compromising risk controls. Chairman Tuhin Kanta Pandey stated the regulator is examining these limits, with guidelines to follow the completion of consultations.
Sebi aims to reduce structural friction in commodity markets, including GST-related issues for exchange platform participants. The regulator emphasizes that simpler regulation cannot mean weaker compliance. Robust controls over client funds, margins, reporting, and supervision remain fundamental. Sebi's board has also approved allowing foreign portfolio investors (FPIs) to participate in physically settled, non-agricultural commodity derivative contracts, subject to safeguards.
The regulator is engaging with stakeholders on GST-related issues affecting participants using exchange platforms. Pandey made the statement on Saturday. Sebi has completed consultations on a phased approach to physical settlement in select agricultural commodity derivatives. Physical settlement from the outset can impede market development in some agricultural commodities. A phased approach could allow contracts to mature before physical settlement becomes mandatory.
Sebi will strengthen awareness efforts under Project Jagrook for farmers, FPOs, MSMEs, hedgers, and other market users. The regulator aims to deepen cash markets with wider participation, stronger securities borrowing and lending, and efficient hedging and arbitrage.
Focus on Market Integrity and Stakeholder Engagement
Sebi stresses that market integrity must be preserved while engaging stakeholders to address GST-related issues and ensure fair access for all participants. The regulator stated that 'Trust and market integrity' must not be compromised. Under Project Jagrook, Sebi will strengthen awareness of commodity derivatives among farmers, FPOs, MSMEs, hedgers, and other market users. Pandey said: "Access without understanding is not inclusion." This requires participants to grasp both the utility and risks of commodity derivatives.
Phased Approach to Physical Settlement Under Review
A phased approach to physical settlement is being considered to allow contracts to mature before mandatory settlement, addressing structural friction in agricultural commodities. Consultations have been completed on this approach for select agricultural commodity derivatives. The market design should allow contracts to gain scale. Pandey noted that "technology can improve access and efficiency, but its design must reflect their needs while preserving fair access and market integrity."
Broader Regulatory Reforms and Market Growth
Sebi is working to deepen cash markets, improve securities borrowing and lending, and enhance hedging and arbitrage for better price discovery. The regulator's recent reforms are set against a backdrop of significant market growth.
| Metric | Figure |
|---|---|
| Average real GDP growth (last 3 FYs) | 7.4% |
| Avg. Annual capital raised via equity/debt (last decade) | ~₹10 lakh crore |
| Current investor base | ~15 crore |
| Mutual fund assets | ~₹87 lakh crore |
| Outstanding corporate bonds | ~₹61 lakh crore |
| F&O turnover, FY2025-26 (notional) | ~₹1,388 lakh crore |
| Bullion's share of FY2025-26 turnover | ~59% |
| F&O turnover, H1 FY2026-27 (notional) | ~₹1,538 lakh crore |
Sebi received more than 3,500 comments on its consultation covering changes to the Closing Auction Session (CAS), market timings, and settlement methodology for derivative contracts. The regulator is reviewing Settlement Guarantee Fund requirements and has moved stress testing towards historical scenarios that better reflect commodity-price behaviour. Sebi has revamped the Vault Managers Regulations to strengthen infrastructure and oversight for the bullion market.
Other recent measures include reintroducing open-market buybacks through stock exchanges with a simpler process and making IPO disclosures easier for retail investors through a concise, standardised abridged prospectus. Sebi has widened the investor base for corporate bonds, REITs, and InvITs. It has introduced greater flexibility in regulations and streamlined access for foreign investors through SWAGAT-FI. The regulator has permitted netting of funds for FPI transactions, eased re-KYC requirements for NRIs, revamped mutual fund regulations, consolidated the PMS framework, and introduced GARUDA for faster AIF scheme launches.
Sebi’s supervisory approach is becoming more risk-based, with greater attention directed towards higher-risk entities and areas. Regulated entities using AI or machine-learning tools remain responsible for investor-data protection and system outputs. Sebi will finalize position limit guidelines following completion of stakeholder consultations.
