Sebi proposes phased physical settlement in select agri derivatives

The Securities and Exchange Board of India (Sebi) has proposed a phased approach for select agricultural commodity derivatives contracts. Under this framework, exchanges may initially allow these contracts to be financially settled. The contracts would then transition to compulsory physical settlement once they cross predefined thresholds for average daily traded volume or open interest, or after two years from launch, whichever occurs earlier. Sebi stated that this transition would be governed by objective and transparent triggers to ensure the flexibility remains time-bound. The regulator explained that compulsory physical settlement from inception may limit participation to entities capable of taking or giving delivery. By allowing contracts to operate temporarily in a financially settled format, the regulator aims to broaden participation and improve market depth before delivery obligations are introduced. The proposal retains compulsory physical settlement as the eventual outcome, with contract specifications defined upfront. Sebi indicated that the framework could initially be implemented on a pilot basis for a limited set of commodities such as maize, groundnut, and chilli. The regulator has invited public comments on the proposal, including on the suitability of the phased approach, safeguards during the financially settled phase, and the choice of commodities for the pilot.

(Source：Business Standard)