SEBI Extends Ban on Trading in Derivative Contracts in 7 Commodities for One More Year

Sebi has also suspended the following agricultural commodities: non-basmati paddy, chana, crude palm oil, mustard seeds and derivatives, and soya bean and derivatives. "Trading in the above contracts has been suspended for one year beyond December 20, 2022, i.e. until December 20, 2023," SEBI said in a statement on Wednesday.

The suspension allows for the re-allocation of existing positions in these commodities, but no new futures trading is permitted for a year.

To combat inflation, the Securities and Exchange Board of India (SEBI) prohibited exchanges from launching new derivative contracts for soyabean, mustard seeds, channa, wheat, paddy, moong, and crude palm oil in December 2021. These instructions were valid for one year.

The Commodity Participants Association of India (CPAI) urged the government and Sebi earlier this month to allow exchanges to resume trading in these seven agricultural derivatives contracts.

The association stated in a letter to the Finance Ministry and Sebi that the prolonged bans are harmful to the Indian commodity market ecosystem and severely damage perceptions of India's ease of doing business environment.

CPAI stated that the price of some of these commodities has been below or around MSP over the last year, and many studies have concluded that commodity prices are primarily governed by supply and demand factors, with trading on exchanges having no impact on the price.

In the event of significant volatility in agri-commodity contracts, the association suggested that easily reversible options such as increasing margin and lowering open interest limits for commodity derivatives contracts be considered.