The Securities and Exchange Board of India (SEBI) on May 12, 2026, issued Consultation Paper on Phased Introduction of Physical Settlement in Select Agricultural Commodity Derivatives Contracts.
SEBI has issued a consultation paper proposing a pilot framework for agricultural commodity derivatives contracts, where such contracts would initially trade as financially-settled and later mandatorily transition to physical settlement upon meeting predefined thresholds such as average daily traded volume (ADTV), open interest, or a maximum time period (e.g., two years). This aims to support the launch or revival of illiquid contracts while ultimately maintaining alignment with physical markets.
The proposal is rooted in the importance of physical settlement for ensuring price convergence, market integrity, and genuine hedging participation. However, SEBI acknowledges that enforcing compulsory physical settlement from the beginning may limit liquidity and participation, especially in newly introduced or thinly traded contracts. A phased approach is therefore suggested to allow markets to develop sufficient depth before transitioning to delivery-based settlement.
The framework also outlines that contracts will be designed as delivery-based from inception, with the financially-settled phase acting only as a temporary transition mechanism. This approach is particularly relevant for commodities facing issues like low liquidity or repeated contract failures. On a pilot basis, commodities such as maize, groundnut, or chilli may be considered.
SEBI has invited public comments on the proposal, including its suitability, risk safeguards, and selection of commodities. Stakeholders can submit their feedback online or via email by June 02, 2026, after which the inputs will be reviewed before finalizing the framework.
