SEBI Proposes Major Overhaul of Derivatives Market Regulations

 Securities and Exchange Board of India has proposed a wide-ranging revamp of regulations governing exchange-traded derivatives (ETDs), including commodity and financial derivatives, as part of efforts to simplify compliance, reduce duplication and modernise India’s market infrastructure. 

CTM Framework Removal Proposed 

One of the biggest proposals involves removing the “Close to the Money” (CTM) option exercise framework for commodity “Options in Goods”. 

SEBI said the CTM mechanism creates operational complexity, increases uncertainty for sellers and raises margin requirements for buyers. The regulator added that major global exchanges do not use the framework and similar norms for options on futures were already removed in 2022. 

The move is expected to simplify expiry handling and reduce operational confusion. 

PAC Norms and Expiry Rules May Be Relaxed 

SEBI proposed greater flexibility for Product Advisory Committees (PACs), which currently require participation from trade bodies, FPOs, warehouses, assayers, SMEs, MSMEs and financial institutions. 

Under the proposal, exchanges can seek exemptions if certain stakeholders are not relevant for specific commodities. SEBI also suggested reducing mandatory PAC meetings for both agri and non-agri commodities to once annually. 

The regulator noted that many non-agri contracts rarely require specification changes and exchanges often face attendance-related issues. 

SEBI further proposed allowing exchange managing directors to directly approve expiry-date changes during emergencies such as strikes, weather disruptions or festivals without lengthy approval procedures. 

Compliance and Monitoring Rules to Be Simplified 

SEBI proposed allowing exchanges to formally outsource position-limit monitoring to clearing corporations through structured agreements defining responsibilities. 

The regulator also plans to remove outdated Base Minimum Capital (BMC) provisions for brokers without nationwide trading terminals, stating that internet-based trading has made such rules obsolete. 

Older certification norms already covered under SEBI regulations and the NISM framework may also be removed. 

In addition, SEBI proposed discontinuing mandatory publication of derivatives transaction details in newspapers and allowing disclosures only on exchange websites. 

Product Success Framework (PSF) reports may also shift from regulatory filings to website-based disclosures. 

Unified Derivatives Framework Planned 

SEBI proposed integrating regulations for equity, commodity, currency and interest-rate derivatives into unified frameworks to improve consistency and reduce duplication. 

The regulator also suggested separate master circulars for exchanges and clearing corporations, reflecting the increasing operational independence of clearing corporations. 

Additional proposals include merging overlapping surveillance rules, consolidating eligibility norms, aligning trading-hour regulations and simplifying price-band rules. 

SEBI has invited public comments on the consultation paper until June 4, 2026, through its online consultation portal. 

Read More: SEBI Considering Specialised Distributors to Boost Debt Products Access! 

Conclusion 

The proposed reforms represent a significant push by SEBI to streamline derivatives regulations, modernise operational frameworks and provide exchanges with greater flexibility while improving consistency across India’s derivatives markets. 

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