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Contract specifications and launch calendar cannot be changed without Sebi’s prior approval and an advance announcement to the market. Photo: Aniruddha Chowdhury/Mint
Contract specifications and launch calendar cannot be changed without Sebi’s prior approval and an advance announcement to the market. Photo: Aniruddha Chowdhury/Mint

Derivative trading rules for commodity bourses tightened

Before launching any futures contract, its specifications and launch calendar have to be notified well in advance to the market, Sebi said

Mumbai: The Securities and Exchange Board of India (Sebi) tightened on Tuesday the norms for derivatives traded on commodity bourses and said the terms of a futures contract cannot be changed without taking the regulator’s approval and informing market participants in advance.

Before launching any futures contract, its specifications and launch calendar have to be notified well in advance to the market, Sebi said.

Also, contract specifications and launch calendar cannot be changed without Sebi’s prior approval and an advance announcement to the market, the regulator said.

“Once the contracts are commenced, no terms of the contract specifications should be changed without prior approval of Sebi," a circular said.

The market regulator said that if an exchange decides to delist a contract that does not have any open interest, it has to inform Sebi and give adequate reasons for doing so.

In January, NCDEX abruptly suspended castor seed contracts expiring in February and beyond, suspecting manipulation and concentration of trades.

The suspension came without any prior alert to the market, after 10 clients defaulted on their pay-in obligations to four brokers after castor seed prices crashed in February.

It was then noticed that these 10 clients had accumulated large outstanding buy positions equalling 10% of the country’s annual production.

Later, Sebi demanded an explanation and in a 2 March interim order barred 16 entities, including four trading members and their defaulting clients, from accessing markets for suspected fraudulent and unfair trade practices.

Sebi also ordered a forensic audit into the role of the NCDEX management.

On Tuesday, the market regulator directed all commodity exchanges to ensure that the commodities deposited for settlement of trades are in compliance with the regulations of authorities such as the Food Safety and Standards Authority of India, Bureau of Indian Standards and so on, apart from Sebi’s norms.

The market regulator said that a nationwide commodity derivatives exchange can modify the futures contract specifications with regard to ticker symbol, maximum order size, trading unit, delivery unit, quotation base value, delivery centres or other specifications only after informing the market and the regulator well in advance along with sufficient reasons for doing so.

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