SEBI Consultation Paper Proposes Simplest Derivatives Framework In Years For Exchanges

India's markets regulator has put forward a wide-ranging cleanup of the rules governing exchange-traded derivatives.

The Securities and Exchange Board of India (SEBI) issued a consultation paper on Thursday laying out the proposals, which focus on cutting duplication, removing rules that have become irrelevant and making it easier for exchanges and clearing corporations to operate.

Here are the key proposals suggested by the SEBI.

Removal Of The CTM Mechanism

One of the more technical changes is the proposed removal of the Close to the Money (CTM) option series mechanism for commodity derivatives.

Global commodity exchanges do not use it and the regulator has concluded it adds unnecessary complexity to how options are exercised, while creating uncertainty for option sellers. Removing it brings India's commodity options framework closer to international practice.

Fewer Meetings, Less Paperwork

SEBI proposed reducing Product Advisory Committee meetings for non-agricultural commodity derivatives from two per year to one, bringing them in line with the existing norm for agricultural commodities.

Exchanges told the regulator that contract specifications for non-agricultural commodities do not change much and that participation in these meetings has been thin. The regulator has also proposed relaxing the balanced representation requirement in these committees.

Expiry Flexibility When Markets Shut

When physical markets close suddenly due to strikes, festivals or bad weather, exchanges would be allowed to advance contract expiry dates without going through the full Product Advisory Committee approval process.

The regulator acknowledged that the current requirement of ten days' advance notice is simply not workable in emergency situations, and exchanges should be able to move quickly with shorter but adequate notice.

Outsourcing Position Limit Monitoring

Exchanges could hand off position limit monitoring to clearing corporations through formal agreements that define roles clearly and operate at arm's length.

Right now, different exchanges handle this differently across products and client types, creating inconsistency. Formalising the outsourcing arrangement would bring more uniformity.

Removal Of Outdated Provisions

SEBI said some old rules for brokers are no longer needed. These rules were for brokers without nationwide trading terminals. But regional exchanges have shut down. Trading has also shifted to internet platforms. So, SEBI feels these requirements do not fit the current system.

The regulator also suggested another change. It wants to remove separate certification rules for derivatives market participants. SEBI said these are already covered under its certification framework for associated persons in the securities market.

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Newspaper Disclosures Out, Websites In

SEBI has proposed replacing newspaper disclosures of derivatives transactions with disclosures on exchange websites. It cites wider online access to information as the reason.

Additionally, SEBI plans to split the master circular into two separate documents, one for exchanges and one for clearing corporations.

Public comments on the consultation paper are open until 04 June 2026.

Sources:

Businessline

Moneycontrol