Sebi chairman Tuhin Kanta Pandey said on Saturday that the market regulator is examining position limits for non-agricultural contracts to improve liquidity and depth without weakening risk controls.
Speaking about reforms in the commodity derivatives market, Pandey said the market design should allow contracts to gain scale. In some agricultural commodities, physical settlement from the outset can impede market development, and a phased approach could allow contracts to mature before physical settlement becomes mandatory.
Sebi has completed consultations on the matter and guidelines will follow, he said, adding that the regulator is also working to reduce structural friction in commodity markets, including engaging with stakeholders on GST-related issues affecting participants who give or receive commodities through exchange platforms.
According to Pandey, technology should serve the specific needs of commodity markets, which include producers, commercial users, farmers, processors and physical hedgers.
“Technology can improve access and efficiency, but its design must reflect their needs while preserving fair access and market integrity,” he said at an event organised by CPAI (Commodity & Capital Market Participants Association of India).
On investor awareness, Pandey said Sebi will strengthen efforts under Project Jagrook to spread awareness about commodity derivatives among farmers, farmer producer organisations (FPOs), MSMEs, hedgers and other market users.
“Access without understanding is not inclusion,” he said, stressing the need for participants to understand both the utility and risks associated with commodity derivatives.
Sebi is also working towards deeper and more liquid cash markets, with wider participation, stronger securities borrowing and lending, and efficient hedging and arbitrage expected to improve price discovery and strengthen the interaction between cash and derivatives markets.
Pandey said simpler regulation should not mean weaker compliance, and robust controls over client funds, margins, reporting and supervision remain fundamental.
“Trust and market integrity” must not be compromised, he added.
Last month, the Sebi board approved a proposal to allow foreign portfolio investors (FPIs) to participate in physically settled, non-agricultural commodity derivative contracts, subject to safeguards.