India proposes interim cash settlement to boost liquidity in agri derivatives
Complete. Here is the key summaryIndia's markets regulator has proposed allowing select agricultural commodity derivatives to initially trade as cash-settled instruments to boost liquidity. The Securities and Exchange Board of India (SEBI) suggested that these contracts could transition to physical delivery after meeting certain trading volume or open interest thresholds, or after two years. Commodities like maize, groundnut, and chilli may be included in a pilot program. This interim cash settlement aims to enhance participation without marking a policy shift away from physical settlement. Public comments are invited until June 2.
BENGALURU, May 12 (Reuters) - India's markets regulator has proposed allowing select agricultural commodity derivatives to initially trade as cash-settled instruments before transitioning to compulsory physical delivery, in a bid to revive liquidity in thinly traded commodity derivatives.
• The Securities and Exchange Board of India on Tuesday proposed that exchanges could revive or launch delivery-based contracts in select commodities that would begin as cash-settled contracts but shift to physical settlement after meeting certain thresholds
• Maize, groundnut and chilli are among commodities that could be considered for a pilot
• These contracts would be cash-settled until they cross certain average daily traded volume and/or open interest thresholds, or after two years from launch
• In India, commodity derivatives contracts are generally settled through physical delivery
• Physical settlement can sometimes curb liquidity and participation
• SEBI said the proposal does not mark a policy shift away from physical settlement, with cash settlement intended only as an interim measure
• The regulator has sought public comments till June 2
(Reporting by Nishit Navin in Bengaluru; Editing by Mrigank Dhaniwala)