Summary of this article
Sebi proposes to simplify derivatives rules and merge multiple frameworks into one
The proposals aim to unify rules across all derivatives and remove complex norms like CTM in commodity options
Compliance requirements for exchanges may be reduced
Market regulator Securities and Exchange Board of India (Sebi) on May 14 released a consultation paper proposing wide-ranging changes to the regulatory framework for exchange-traded derivatives, including commodity derivatives, as part of its efforts to improve ease of doing business for exchanges and clearing corporations.
In a consultation paper issued on May 14, Sebi proposed merging several provisions spread across different master circulars into a single consolidated framework for exchange-traded derivatives. The regulator said the exercise is part of a broader review of norms applicable to market infrastructure institutions (MIIs), including stock exchanges and clearing corporations.
Sebi said the proposed review broadly involves a “chapter-wise review” of existing circulars, an “entity-wise review” separating rules for exchanges and clearing corporations, and “merger of Master Circular in a single set of directions for Stock Exchanges and Commodity Derivatives exchanges.”
The regulator has invited public comments on the proposals till June 4, 2026.
One Set of Rules for All Derivatives
A large part of Sebi’s consultation paper focuses on reducing repetitive compliance requirements and aligning regulations with current market practices.
Sebi said the proposed changes are aimed at “simplification of regulatory requirements, removal of redundant provisions, discontinuation of duplication, in order to promote ease of doing business and reduce the compliance burden on exchanges.”
One of the key proposals is to merge separate regulations governing equity derivatives, currency derivatives, commodity derivatives, and interest rate derivatives into broader consolidated sections. The regulator has also proposed combining commodity derivatives-related provisions with the main master circular applicable to exchanges.
According to Sebi, having separate master circulars for commodity derivatives may no longer be necessary because commodity trading now operates as a segment within stock exchanges.
Sebi Plans To Remove ‘Close To Money’ Norm In Commodity Options
Among the most notable proposals is Sebi’s plan to remove the “Close to the Money” (CTM) exercise mechanism for options in goods in commodity derivatives.
Currently, certain option contracts near the strike price require explicit exercise instructions from traders. Sebi now wants to discontinue this mechanism, arguing that it makes commodity options more complicated for participants.
The regulator said, “There is no concept of close to money (CTM) on leading international commodity exchanges because the concept of CTM makes the exercise mechanism complex for the trade participants.”
Sebi also noted that CTM options create uncertainty and price risk for option sellers while increasing margin requirements for buyers.
Relief For Commodity Exchanges On Advisory Meetings
Sebi has also proposed easing rules related to Product Advisory Committees (PACs) for commodity derivatives.
As of the existing rules, PAC meetings for non-agricultural commodities must be held at least twice a year. Sebi now wants to reduce this requirement to one meeting annually, bringing it in line with agricultural commodities.
Sebi said exchanges have told the regulator that frequent meetings are often not needed, as non-agricultural commodity contracts usually involve very few changes in their specifications. They also pointed out that it is difficult to ensure the presence of all committee members, especially in commodity contracts with low trading activity.
In another relaxation, Sebi has suggested that certain members of the PAC may be exempted if they are not relevant for a particular commodity. For instance, in cash-settled contracts, there may be no need to include warehouse service providers or assayers.
Frequently Asked Questions
1. What changes did Sebi propose for derivatives in 2026?
Sebi proposed a major overhaul of derivatives regulations in order to simplify compliance, reduce duplication, and merge multiple rulebooks into a single consolidated framework for exchanges and clearing corporations.
2. What will Sebi achieve by merging derivatives regulations into one framework?
Sebi aims to reduce repetitive rules, align regulations with current market practices, and make it easier for stock exchanges and clearing corporations to comply with a unified set of guidelines.
3. What is the “Close to the Money” (CTM) rule, and why may Sebi remove it?
The CTM rule requires explicit exercise instructions for certain near-the-money commodity options. Sebi is considering removing it because it is seen as complex, not used in global markets, and adds uncertainty for traders.
