SEBI proposes new exchange-traded derivatives rules: What commodity traders should know

India’s capital markets regulator, Securities and Exchange Board of India, has proposed a broad restructuring of the regulatory framework governing exchange-traded derivatives (ETDs), seeking to simplify compliance requirements for market infrastructure institutions while streamlining trading rules across segments.

In a consultation paper, SEBI proposed measures aimed at reducing operational complexity, removing redundant provisions and consolidating existing circulars applicable to stock exchanges and clearing corporations.

Among the key proposals is the removal of the “close-to-the-money” (CTM) concept in commodity derivatives options. The regulator has also suggested rationalising stress-testing norms, revising the Settlement Guarantee Fund (SGF) coverage framework and simplifying operational requirements related to infrastructure capacity planning.

The proposals are part of SEBI’s wider effort to make India’s derivatives ecosystem more efficient and globally competitive as trading volumes and market participation continue to expand.

Shashank Udupa, a SEBI-registered research analyst and fund manager at Smallcase, said the proposed removal of the CTM category could reduce confusion among retail traders in commodity markets.

“This is a welcome move by SEBI as ‘close to money’ usually created confusion in the market due to multiple rules. Traders would now broadly classify positions as either in-the-money or out-of-the-money, which may help reduce expiry-day errors, especially among newer commodity traders,” he said.

Udupa added that SEBI’s simultaneous focus on municipal bond reforms signals a broader attempt to deepen participation across market segments, including commodities and fixed income.

Sonam Srivastava, founder and fund manager at Wright Research, said the proposed changes indicate a more calibrated and risk-proportionate regulatory approach.

“SEBI’s proposal to ease derivatives compliance norms for exchanges and clearing corporations is a meaningful step in aligning India’s market infrastructure with global standards without compromising systemic resilience,” she said.

She noted that the proposed revision of SGF coverage norms and rationalisation of stress-testing assumptions move away from “overly conservative assumptions” toward more realistic default scenarios.

Srivastava also highlighted SEBI’s proposal to consolidate master circulars into a unified framework, saying regulatory fragmentation had long created compliance and interpretation challenges for market infrastructure institutions.

The consultation paper remains open for public comments before SEBI finalises the framework.