Sebi extends suspension of derivatives trade in 7 agri commodities for 1 year

Capital markets regulator Sebi has extended the suspension of futures and options trading in seven agricultural commodities, including wheat and moong, for one more year till December 2023 in a bid to rein in prices. The other agricultural commodities suspended by Sebi are — paddy (non-basmati), chana, crude palm oil, mustard seeds and their derivatives and soya bean and its derivatives.

“The suspension of trading in the above contracts has been extended for one more year beyond December 20, 2022, i.e. till December 20, 2023,” Sebi said in a statement on Wednesday.

The suspension permits squaring up of existing positions in these commodities, but no fresh futures trading is permitted in them for a year.

To curb inflation, the Securities and Exchange Board of India (Sebi) on December 2021 prohibited exchanges from launching new derivative contracts of Soyabean, mustard seeds, channa, wheat, paddy, moong and crude palm oil. These directions were applicable for one year.

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

In its letter to the Finance Ministry and Sebi, the association had said the prolonged bans are detrimental to the Indian commodity market ecosystem and severely dent the perception regarding India’s ease of doing business environment.

During the last one year, the price of some of these commodities has been below or around MSP, and many studies concluded that the commodity prices are predominantly governed by supply and demand factors, and trading on exchanges has no impact on the price, CPAI had mentioned.

The association suggested that easily reversible options, such as increasing margin and lowering open interest limits for commodity derivatives contracts may be resorted to in case significant volatility is observed in agri-commodity contracts.