CIRCULAR
SEBI/HO/MRD/MRD-PoD-1/P/CIR/2024/69 May 30, 2024
The Managing Directors/Chief Executive Officers
All Recognised Stock Exchanges having Commodity Derivatives Segment
Dear Sir/Madam,
Sub: Revision of eligibility criteria for launching commodity futures contracts.
1. Paragraph 2.2 of Chapter 2 and Paragraph 10.1 of Chapter 10 of SEBI Master
Circular dated August 4, 2023 for Commodity Derivatives segment prescribe
Criteria for Eligibility, Retention and Re-introduction of Derivative Contracts on
Commodities and Permission for Trading in Futures Contracts, respectively.
2. Some of these norms as mentioned at paragraph 1 above were prescribed by
erstwhile Forward Market Commission (FMC) and were continued after the merger
of FMC with SEBI. The commodity derivatives markets have evolved since then,
with the introduction of new products, participants, entry of new stock exchanges
and thus, a need is felt to review the norms in the aforesaid provisions.
3. Based on representations received from market participants and deliberations by
Commodity Derivatives Advisory Committee (CDAC) of SEBI, it has been decided
to modify the norms under Paragraph 2.2 and Paragraph 10.1 of the Master Circular
dated August 4, 2023 as under:
A. Paragraph 2.2. heading may be read as under.
Criteria for eligibility of derivative contracts on commodities
B. Paragraph 2.2.2.: “The following criteria for eligibility, retention and re-
introduction of derivative contracts on commodities shall be followed by all the
stock exchanges.” stands deleted.
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C. Paragraph 2.2.3 (vi) is modified as under.
“The stock exchanges shall also analyze all the proposed commodities on the
afore-said parameters comprised in the template and submit the same to SEBI
along with necessary supporting documentary evidence for referring the
commodity for notification under section 2(bc) of Securities Contracts
(Regulation) Act, 1956.”
D. Paragraph 2.2.4. “Applicability of the template on the commodities presently
being traded” stands deleted.
E. Paragraph 2.2.5: “Criteria for retention and reintroduction of derivative contracts
on commodities” stands deleted.
F. Paragraph 10.1.1. is modified as under.
10.1.1. Check-list of information/details to be submitted along with proposal
for launch of new contract:
10.1.1.1 All derivative contracts approved by SEBI from time to time, are allowed
to be traded in respective Stock exchange(s) on a continuous basis
without requiring further approval unless SEBI advises/directs otherwise.
10.1.1.2 All proposals of stock exchange for launch of new contract shall be
accompanied by complete information covering all the points appended
at Annexure P of the Master Circular dated August 4, 2023 regarding
Checklist of information/details for launch of new contract. The
parameters / items listed in the check-list for compliance are illustrative
and not exhaustive. Any additional relevant parameter/information as
deemed necessary may also be furnished while sending proposal for
contracts.
G. Paragraph 10.1.2. is modified as under.
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10.1.2. “Approval for futures contracts: Approval for futures trading in the
commodities approved by SEBI is subject to the following terms and conditions:
i. Approval for trading in futures contracts is subject to Rules, Byelaws and
Regulations of the concerned Stock Exchange.
ii. Stock exchange shall launch future contracts with contract specifications
including launch calendar as approved by SEBI. Contract specifications and
contract launch calendar shall be notified well in advance to the market
participants on the website of the Stock Exchange.
iii. Except for the specifications permitted to be modified at stock exchange level,
contracts specifications should not be changed without prior approval. For any
modification in contract specification, the Stock Exchange(s) shall give prior
appropriate notice to the market participants. Once the contracts are
commenced, no terms of the contract specifications should be changed without
prior approval of SEBI.
iv. The Stock Exchanges shall launch a contract within six months of approval by
SEBI, failing which the stock exchange shall apply for fresh approval from SEBI
for launching the contract.
v. In case the stock exchange decides not to launch new contract for trading or to
de-list the already running contracts (s) having nil open interest, then stock
exchange shall keep SEBI informed with adequate reasons for such decision.
vi. The contracts approved for continuous trading in agri-commodities shall
continue to follow the lean month expiry policy as laid down and shall be subject
to any other directions as may be issued by SEBI from time to time. Also, apart
from the approved quality standards, the stock exchange should ensure that
the commodity deposited should comply with the regulations laid down by the
other authorities like Food Safety Standard Authority of India, Agmark, BIS etc.
vii. The stock exchange shall ensure that the prescribed position limits on open
position of each member and non-member client and the limits on daily price
fluctuation as specified in the contract specification are adhered to.
viii. The permission granted for the contracts is subject to daily Mark to Market
settlement of outstanding contracts as per the procedure and delivery
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mechanism/process specified in the Bye-laws, the Rules and the Regulations
of the stock exchange.
ix. The stock exchange shall ensure that there is no unhealthy speculative trading
in the market, which may result in cornering or artificial rigging up or down of
the prices by a particular member or group or class of members.
4. This Circular shall come into force with effect from June 1, 2024.
5. The Stock Exchanges are advised to bring the provisions of this circular to the
notice of their members and also to disseminate the same on their websites
6. This circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act 1992 to protect the interest of
investors in securities and to promote the development of, and regulate the
securities market.
7. The circular is issued with approval of the competent authority.
8. This circular is available on SEBI website at www.sebi.gov.in under the category
“Circulars” and “Info for – Commodity Derivatives.”
Yours faithfully,
Naveen Sharma
General Manager
Market Regulation Department
Email: naveens@sebi.gov.in
Phone No.: 022-26449709
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Checklist of information/details for launch of new contracts – Annexure P
Serial
Information required Comments
Number
GENERAL‐
Justification for introducing of futures trading
in the commodity including its relevance
1
/importance to the economy (in brief) with
information for preceding 3 financial
years on :‐
a. Its annual production
b. Import‐export data
c. Details of domestic consumption
d. Main area of cultivation
e. Patterns of consumption/utilization
f. Commercialization rate (annual
exports/annual supply)
g. Crop cycle
h. Warehouse facilities in the cultivation area
i. Preferred trade quantity in physical market
j. Shelf‐life of the commodity
k. Global level production / consumption
figures, major exporting & importing
countries with figures
l. Monthly price movement in futures market –
both domestic and international for last 3
years
Prevailing spot prices in the domestic
physical market in the last three years and
m.
immediate 3 preceding months prior to the
application
Which are the other exchanges where the
proposed contract is already being traded
n. and its/ their respective market share in
terms of volumes & percentage of trades
(estimated)?
o. Value Chain of the commodity
p. Degree of standardisation
q. Political sensitivity/price controls
Whether commodity is under purview of
r. Essential commodities act / APMC Act / The
Food Control Regulation Act etc.
s. Geographical coverage
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t. Correlation with International Market
u. Seasonality
v. Price Volatility
2 CONTRACT Specifications with reasons
a. Lot size
b. Tick size
c. Period of the contract (one month, two
months, etc.)
Quality standards (should meet FSSAI
d. standards and any other statutory prescribed
standards )
e. Lean period
f. Basis Centers
g. Mechanism for allocation of delivery on the
Exchange platform in a transparent manner
Rationale behind adopting “intention
matching contract” as against “compulsory
h.
delivery” contract, if the case is so, in the
proposed contract.
Mechanism of spot price polling –whether
AGMARK prices used to track spot prices‐
i.
other measures/precautions taken to ensure
transparency and credibility
j. Settlement system with settlement price
formula
k. Trading units and Delivery units
3. EXPECTED PARTICIPATION IN THE
CONTRACT
a. Hedgers participation
b. Warehouse participation
c. What efforts Exchange had made to educate
hedgers / market participants about the
contract
4. COST OF TRADING IN CONTRACT :‐
Details of Delivery Centers, their respective
storage capacity, and price neutralization
a.
formula for non‐preferred delivery centers
etc.
Detailed break‐up of charges proposed to be
levied by the Exchanges for trading /
b.
warehouse for storage / delivery charges
and cost in respect of failed deliveries, etc.
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5. MARKET SURVEILLANCE AND RISK
MANAGEMENT :–
a. Permitted price variation in a day
b. Open position limits in respect of client,
member and market as a whole
c. Checks and balances for high frequency/
Algo trades
Initial margin, M ‐o‐M margin, and conditions
d. under which special / additional margins
could be levied by Exchanges
e. Settlement / trade guarantee
f. Staggered delivery system
Status of awareness programmes for
Hedgers/Potential Hedgers/Industry
6.
Associations / processors etc. organised
during last 1 year.
7. ANY OTHER COMMENTS/
EXPLANATIONS TO OFFER, IF ANY (IN
BRIEF)
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