A regulatory panel formed by the Securities and Exchange Board of India (Sebi) has greenlit cash settlements up to fixed thresholds in select agriculture commodities, according to reports from Stock Market News. The move aims to balance the need to deepen the farm derivatives sector while minimizing risks. Currently, physical delivery is mandatory for all farm derivatives, meaning traders must hand over or take receipt of the physical goods once futures or options contracts expire. This requirement keeps the critical agriculture segment free of excessive speculation and keeps contract prices aligned with real-world prices, but it also limits participation and keeps the farm derivatives sector shallow. The proposal targets narrow commodities such as pepper, turmeric, guar, and dhaniya, which are offered by NCDEX.
In December, Sebi chairman Tuhin Kanta Pandey said the working group is examining whether the regulatory framework governing margins, position limits, and delivery and settlement mechanisms can be optimized without compromising market integrity. As reported by Stock Market News, one of the suggestions is that when introducing a contract, cash settlement can be allowed up to a certain threshold, after which delivery-based settlement becomes mandatory. The working group submitted its report to Sebi in February, and the regulator's Commodity Derivatives Advisory Committee (CDAC) has backed the suggestion. Sebi is now expected to issue a consultation paper for public feedback. Following the merger of the Forward Markets Commission (FMC) with SEBI in September 2015, Sebi established the Commodity Derivatives Market Regulation Department (CDMRD) as a dedicated department to regulate commodity derivatives markets.
As reported by Stock Market News, the National Commodity & Derivatives Exchange (NCDEX) and the Multi Commodity Exchange of India (MCX) both opened in 2003 after the government ended a four-decade ban on commodity derivatives trading. However, their fortunes differ significantly: NCDEX's total futures turnover stood at ₹1.4 trillion in FY26, while total options premium turnover was ₹209 crore. In contrast, MCX clocked total futures turnover of ₹165 trillion and options premium turnover of ₹16.72 trillion in the same year. The key reason for this disparity is that trading in farm derivatives has remained under tight government and regulatory grip given their direct impact on livelihoods, while metals and energy are more removed from the common man.
According to Stock Market News, the proposed move is intended to address practical challenges in physically settling contracts for commodities with seasonal or limited availability. As one source explained, 'the seasonality of narrow commodities is limited. You cannot have one contract in every season, because in some seasons, the farmer is sowing it, but they are still expected to deliver the product'. Agricultural commodity derivative trading volumes have remained subdued for years due to ongoing bans on futures trading in agricultural commodities such as wheat, paddy, chana, mustard seed, soyabean, moong and crude palm oil. The suspension, first imposed in 2007 and extended until March 31, 2027, was aimed at curbing food inflation and preventing excessive speculation in essential farm commodities.
