The Securities and Exchange Board of India (SEBI) has proposed the introduction of financially-settled contracts for select agricultural commodity derivatives, aiming to enhance liquidity in the market. This initiative, announced on Tuesday, will initially allow exchanges to relaunch illiquid contracts or introduce new delivery-based contracts for certain agricultural commodities as financially settled instruments.
Under the proposed framework, these contracts would transition to physical settlement after meeting specific criteria related to Average Daily Traded Volume (ADTV) and/or open interest, or two years from their launch, whichever comes first. SEBI noted, “In the case of newly introduced or thinly traded agricultural contracts, compulsory physical settlement from inception may unintentionally restrict participation to a narrow set of market participants who are operationally capable of taking or giving delivery.” The regulator has invited public comments on the proposal, with a deadline set for June 2.
As part of the pilot phase, commodities like maize, groundnut, and chilli may be included in this new framework. The phased approach is particularly significant for agricultural commodities that have historically struggled with low trading volumes and contract discontinuation. The temporary financially settled stage will allow market participants to familiarize themselves with contract specifications and price behavior, while giving exchanges time to bolster their warehousing, assaying, and delivery infrastructure.
Despite the initial financial settlement, the proposal retains physical settlement as the ultimate objective, requiring contracts to transition once adequate market depth is achieved. Specifications concerning quality standards, delivery locations, and settlement procedures will be defined at the outset. SEBI emphasized that this proposal aims to balance market development with the regulatory principle that agricultural commodity derivatives should ultimately be settled through physical delivery.
The announcement was published on May 12, 2026.
