SEBI reviews rules for non-agricultural commodity contracts to boost market depth

Market regulator SEBI is examining position limits for non-agricultural contracts to improve liquidity and depth without weakening risk controls. SEBI chairman Tuhin Kanta Pandey announced this on Saturday, October 3, 2026, while speaking at an event organised by the Commodity & Capital Market Participants Association of India, also known as CPAI.

Reforms and Rules

Mr. Pandey stated that market design should allow contracts to gain scale. For some agricultural commodities, physical settlement right from the start can slow down market growth, so a phased approach could let contracts mature first. SEBI has finished consultations on this matter, and new guidelines will follow soon. Last month, the SEBI board also approved a proposal allowing foreign portfolio investors, or FPIs, to take part in physically settled non-agricultural commodity derivative contracts under specific safeguards.

Market Friction

The regulator is working to reduce structural friction in commodity markets. This includes talking with stakeholders about GST-related issues that affect participants who give or receive commodities through exchange platforms. Mr. Pandey noted that technology must serve the specific needs of producers, commercial users, farmers, processors, and physical hedgers while keeping fair access and market integrity intact. To boost financial literacy, SEBI will strengthen Project Jagrook to spread awareness about commodity derivatives among farmers, farmer producer organisations, MSMEs, and hedgers. Furthermore, SEBI is working toward deeper cash markets with stronger securities borrowing and lending.

Context

Commodity derivatives help farmers and businesses lock in prices and manage the risk of price changes over time. Regulators like SEBI balance the need for open, active trading with strict rules to protect investors and maintain fair play across financial markets.