New Delhi: A panel set up by India’s market regulator has recommended easing several rules governing commodity derivatives trading in a move aimed at reviving activity and improving price discovery in the sector.
According to sources familiar with the discussions, the panel formed by the Securities and Exchange Board of India is expected to suggest lifting restrictions on derivatives trading in several agricultural commodities that have been suspended since 2021. These include key farm products where trading was halted amid concerns that speculation could fuel food price inflation.
The panel has found little evidence that the trading bans helped control prices on the ground. Instead, it noted that the restrictions reduced market depth and limited the ability of farmers and businesses to hedge against price risks.
One of the major recommendations is to allow derivatives trading to resume in these agricultural commodities in a phased and closely monitored manner. The panel is also understood to have proposed lower margin requirements for some farm contracts to encourage wider participation.
In another significant step, the panel has suggested allowing colocation facilities for commodity derivatives trading. Colocation is currently permitted only in equity markets and helps traders access exchanges faster. Extending this to commodities could improve efficiency, especially in metals and energy contracts.
The panel has also highlighted the need to remove uncertainty around taxes by clearly defining how goods and services tax applies to commodity derivatives. Industry participants have long complained that unclear tax treatment discourages trading and institutional involvement.
There is also a push to gradually open the commodity derivatives market to institutional investors such as banks, pension funds and insurance companies, subject to approvals from the government and the Reserve Bank of India. Officials believe institutional participation would bring in long term liquidity and strengthen risk management.
The recommendations are part of SEBI’s broader effort to deepen India’s financial markets and make commodity exchanges more relevant to the real economy. India’s commodity derivatives market has struggled to grow in recent years compared to equity derivatives, partly due to frequent regulatory curbs.
The panel is expected to submit its final report in early 2026. Any major changes will require consultations with the central government before new rules are notified.
If accepted, the proposed reforms could mark a turning point for India’s commodity markets by restoring confidence among traders, producers and investors while keeping a close watch on inflation risks.