Sebi extends suspension on futures trade in key farm commodities by a year

The other agricultural commodities suspended by Sebi are — paddy (non-basmati), chana, crude palm oil, mustard seeds and their derivatives and soya bean and its derivatives.

The Securities and Exchange Board of India (SEBI) had last year ordered a year-long suspension of futures trading in key farm commodities, as the world’s biggest importer of vegetable oils and a major producer of wheat and rice struggled to tame food inflation.

Annual retail inflation eased below the central bank’s upper tolerance level for the first time this year in November amid a softer rise in food prices.

“The suspension of trading in the above contracts has been extended for one more year beyond December 20, 2022, i.e. till December 20, 2023,” Sebi said in a statement on Wednesday.

The suspension permits squaring up of existing positions in these commodities, but no fresh futures trading is permitted in them for a year.

Earlier this month, the Commodity Participants Association of India (CPAI) had urged the government and Sebi to allow exchanges to resume trading in these seven agricultural derivatives contracts.

In its letter to the Finance Ministry and Sebi, the association had said the prolonged bans are detrimental to the Indian commodity market ecosystem and severely dent the perception regarding India’s ease of doing business environment.

During the last one year, the price of some of these commodities has been below or around MSP, and many studies concluded that the commodity prices are predominantly governed by supply and demand factors, and trading on exchanges has no impact on the price, CPAI had mentioned.

The association suggested that easily reversible options, such as increasing margin and lowering open interest limits for commodity derivatives contracts may be resorted to in case significant volatility is observed in agri-commodity contracts.