SEBI Proposes Comprehensive Measures to Regulate Derivatives Market

The Securities and Exchange Board of India (SEBI) has proposed comprehensive measures that would restructure the regulatory framework for exchange-traded derivatives market. The proposals include efforts to simplify commodity derivatives regulation.

In a consultation paper released on Thursday, the market regulator proposed merging overlapping regulations, easing operational requirements for exchanges and introducing separate frameworks for stock exchanges and clearing corporations. SEBI has invited public comments on the proposals until June 4, 2026.

Commodity Derivatives Framework Under Review

One of the key proposals relates to the removal of the “Close to the Money” (CTM) option exercise framework in commodity options contracts.

According to SEBI, the current system creates operational complications for exchanges and increases uncertainty for option sellers while also leading to higher margin requirements for buyers.

The regulator noted that a similar framework had already been removed for options on futures in 2022. SEBI also stated that major global exchanges do not follow the CTM mechanism for commodity options. This would simplify the settlement and expiry process in commodity derivatives trading.

Changes In Product Advisory Committee Norms

SEBI has also proposed easing rules related to Product Advisory Committees (PACs) for commodity contracts.

Under existing rules, PACs must include stakeholders such as trade associations, Farmer Producer Organisations (FPOs), warehouses, assayers, SMEs, MSMEs and financial institutions.

The regulator has now proposed allowing exchanges to seek exemptions where certain stakeholder categories are not relevant to a specific commodity contract.

The consultation paper also suggested reducing the minimum number of PAC meetings. Currently, exchanges must hold one annual meeting for agricultural commodities and at least two for non-agricultural commodities. SEBI has proposed reducing the requirement to one meeting annually for both segments.

Operational Flexibility For Exchanges

The regulator has proposed allowing exchanges to change contract expiry dates during emergencies without seeking prior PAC approvals.

At present, exchanges are required to provide a 10-day notice and complete approval-related formalities before modifying expiry schedules during disruptions such as strikes, weather-related shutdowns or holidays.

Under the revised proposal, managing directors of exchanges would be allowed to approve such changes directly while ensuring adequate notice to market participants.

SEBI has also proposed allowing exchanges to formally outsource position-limit monitoring activities to clearing corporations through structured agreements.

Unified Derivatives Rulebook Proposed

The regulator has suggested integrating regulations governing equity, commodity, currency and interest-rate derivatives into a single consolidated framework to reduce duplication across market segments.

SEBI also proposed issuing separate master circulars for exchanges and clearing corporations, noting that clearing corporations now operate independently because of interoperability arrangements.

Other proposals include removing outdated broker capital norms, simplifying Product Success Framework reporting requirements and discontinuing mandatory publication of derivative transaction details in newspapers.

According to the consultation paper, several older provisions have become redundant because of technological changes and updated certification frameworks under the National Institute of Securities Markets regulations.

The proposed reforms are part of SEBI’s broader effort to streamline the derivatives market framework and improve operational efficiency across exchanges and clearing corporations.