SEBI Lowers Eligibility Criteria for Options on Commodity Futures

SEBI Revises Eligibility Criteria for Options Contracts on Commodity Futures

In a significant move, the Securities and Exchange Board of India (SEBI) has updated the eligibility criteria for launching Options contracts on commodity futures in stock exchanges with commodity derivatives segments. This revision specifically relates to agricultural and agri-processed commodities.

Changes to Eligibility Criteria

Effective June 1, 2024, the average daily turnover requirement for the underlying futures contracts over the past twelve months has been reduced from INR 200 crore to INR 100 crore. This adjustment is intended to encourage the introduction of Options on these commodities. Stock exchanges are required to revise their bye-laws, rules, and regulations accordingly and notify their members and the public about these changes.

Circular Overview

Eligibility criteria for launching Options with Commodity Futures as underlying by Stock Exchanges having commodity derivative segments.

1. Chapter 6 of the SEBI Master Circular dated August 4, 2023, for the Commodity Derivatives Segment outlines the Product Design and Risk Management Framework for Options on Commodity Futures.

2. Following representations from market participants and discussions by the Commodity Derivatives Advisory Committee (CDAC) of SEBI, the eligibility criteria for launching Options contracts on agricultural and agri-processed commodities has been adjusted. The average daily turnover requirement for underlying futures contracts is now INR 100 crore instead of the previous INR 200 crore. Consequently, paragraph 6.1.2 of the aforementioned Master Circular has been amended as follows:

   6.1.2. Eligibility criteria for launching Options with Commodity Futures as underlying:
   Options may be traded on a stock exchange only on those commodity futures which are traded on its platform and meet the specified criteria:

   • The average daily turnover of underlying futures contracts for the corresponding commodity during the previous twelve months shall be at least:
     • a) INR 100 crore for agricultural and agri-processed commodities
     • b) INR 1000 crore for other commodities

3. This circular applies to all Options on Futures contracts (agricultural and agri-processed commodities) introduced on or after June 1, 2024, provided the average daily turnover of underlying futures contracts during the previous twelve months is INR 100 crore.

4. Stock Exchanges must amend their relevant bye-laws, rules, and regulations to implement this circular and disseminate this information to their members and on their websites.

5. This circular is issued under the authority granted by Section 11(1) of the Securities and Exchange Board of India Act, 1992, to safeguard investors in securities and promote the development and regulation of the securities market.

6. The circular can be accessed on the SEBI website at sebi.gov.in under the “Circulars” and “Info for – Commodity Derivatives” categories.

Conclusion

These updates by SEBI reflect a proactive approach to enhance the trading environment for Options contracts in the commodity sector, particularly benefiting agricultural and agri-processed commodities. Stock exchanges should promptly implement these changes to facilitate compliance and inform their members accordingly.