Summary of this article
Sebi proposes extending early pay-in (EPI) benefit to commodity options
Traders may deposit underlying goods early, potentially reducing margin burden, but MTM still applies
Sebi has invited comments till May 26, 2026
The Securities and Exchange Board of India (Sebi) proposed extending the early pay-in (EPI) facility, currently available only for futures contracts, to options contracts in the commodity derivatives segment. With this, the regulator aims to make settlements more efficient and bring down margin obligations.
In a consultation paper released on May 5, the regulator said market participants may be allowed to deposit certified goods in exchange-accredited warehouses against options contracts sold, similar to the existing framework for futures. Based on risk assessment, clearing corporations may exempt such positions from various margin requirements, although mark-to-market (MTM) margins will continue to apply.
Currently, Sebi’s master circular dated August 4, 2023 permits early pay-in only for futures contracts, where traders with short positions can deposit underlying commodities in advance. This allows exchanges to waive margins, except MTM, depending on the perceived risk. However, this facility is not available for options contracts, which has led industry players to seek similar treatment for both segments.
The proposal comes after a working group reviewed how delivery and settlement work in agricultural commodity derivatives. The group suggested that the early pay-in (EPI) benefit should also be extended to options. This recommendation was later discussed by the Commodity Derivatives Advisory Committee (CDAC) in February 2026, which largely agreed with the idea.
Sebi has released a draft circular to make the required changes to its existing rules and has invited public comments on the proposal until May 26, 2026.
What is Early Pay-In
Early pay-in means traders can deliver the underlying commodity to the exchange before the usual settlement date. In commodity markets, this usually involves depositing certified goods in approved warehouses for contracts they have sold, which helps reduce settlement risk.
What It Means for Investors
If implemented, this measure could reduce the margin burden for traders in commodity options, especially those opting for delivery. By allowing the underlying commodity to be deposited in advance, traders may also avoid short-delivery penalties and use their capital more efficiently.
The proposal is also expected to bring more consistency between futures and options, and could help boost participation and liquidity in the commodity derivatives market.
Frequently Asked Questions
1. What is SEBI proposing in this consultation paper?
Sebi is proposing to extend the early pay-in facility, currently available only for futures, to options contracts in the commodity derivatives segment.
2. How does early pay-in help traders?
It allows traders to deposit the underlying commodity before settlement, which can reduce margin requirements and help avoid short-delivery penalties.
3. Will all margins be removed under early pay-in?
No. While some margin requirements may be waived based on risk, mark-to-market (MTM) margins will still continue to apply.
