SEBI Panel Signals Major Reforms for India's Commodity Derivatives Market

A SEBI-appointed panel is set to recommend sweeping changes to commodity derivatives trading, potentially lifting long-standing bans on agricultural commodities and attracting institutional investors. This development, based on Reuters' exclusive reporting, could transform India's underdeveloped commodity market into a deeper, more liquid platform. The panel's final report is expected in early 2026.

Key Recommendations

The panel prioritizes easing restrictions on seven agricultural commodities—paddy, wheat, crude palm oil, and others—where derivatives trading has been banned since 2021 due to speculation fears. Data reviewed shows no significant price impact from trading, supporting ban removal to boost hedging and liquidity. SEBI management aligns with this view, aiming to deepen market participation.

Additional proposals include clarifying GST rules on commodity derivatives to resolve trader confusion and spur volumes, with SEBI likely lobbying for government tax changes. For metals and energy, colocation trading—allowing faster data access already permitted in equities—would align practices globally, though agri commodities may be excluded over inflation concerns. Margins on agri trades could also drop to encourage activity.

Institutional Participation Boost

Under Chairman Tuhin Kanta Pandey, appointed in March 2025, SEBI seeks banks, pension funds, and insurers' entry into commodities, following September discussions with RBI and government. This follows equity market easings and reflects Pandey's priority to strengthen commodity markets. A unified reporting system is also slated by December 2025 for better transparency.

Market Implications

These reforms could elevate India from price-taker to price-setter in global commodities, enhancing hedging for farmers and traders while increasing volumes on exchanges like MCX. Retail dominance may shift with institutional inflows, improving price discovery amid economic growth. Implementation hinges on report approval, but signals a maturing market.

source cnbc