Sebi examining position limits for non-agri contracts to boost liquidity

Securities and Exchange Board of India (Sebi) is analyzing limits on position sizes for non-agricultural contracts, with the aim of boosting market liquidity and depth, according to Sebi chairman Tuhin Kanta Pandey. The regulator wants to enhance market design in order to allow contracts to reach a larger scale. For certain agricultural commodities, settlement of physical goods from the start could hinder market growth; therefore, a gradual approach could allow contracts to mature before the requirement for physical settlement comes into effect.

Sebi has finalized consultations on the matter and is set to release guidelines soon. In addition to this, Sebi is looking to reduce structural challenges in commodity markets by engaging with stakeholders on issues such as GST that affect participants dealing with commodities via exchange platforms. Pandey emphasized that technology should cater to the specific requirements of commodity markets, which include producers, commercial users, farmers, processors, and physical hedgers.

The technology must improve access and efficiency while respecting fair access and market integrity. Sebi will also enhance investor awareness through Project Jagrook, which seeks to educate farmers, farmer producer organisations (FPOs), MSMEs, hedgers, and other market users about commodity derivatives, highlighting the significance of understanding both the benefits and risks involved.

Besides this, Sebi is working towards increasing liquidity and depth in cash markets, expecting wider participation, stronger securities borrowing and lending, and efficient hedging and arbitrage to enhance price discovery and reinforce the relationship between cash and derivatives markets. Pandey reiterated that simpler regulations do not imply weaker compliance; instead, robust controls over client funds, margins, reporting, and supervision remain crucial. Maintaining trust and market integrity must be a priority, he concluded.