SEBI proposes derivatives rulebook overhaul to ease compliance for exchanges
Synopsis
SEBI's latest consultation paper proposes eliminating the 'close-to-the-money' commodity options series, cutting mandatory Product Advisory Committee meetings to once a year, and moving derivatives disclosures from newspapers to exchange websites — a broad regulatory cleanup that signals SEBI's intent to reduce compliance overhead without, it insists, weakening investor protection.
Key Takeaways
SEBI released a consultation paper on 14 May proposing a major overhaul of exchange-traded derivatives regulations.
The regulator has proposed eliminating the 'close-to-the-money' (CTM) option series in commodity options, citing complexity and global practice.
Product Advisory Committee meetings for non-agricultural commodities would be reduced to once a year under the proposal.
Overlapping eligibility norms across index futures, currency futures, and currency options are proposed to be rationalised.
Derivatives disclosures may shift from newspapers to exchange websites ; exchanges could gain wider discretion to tighten position limits.
Public comments are open until 4 June 2025 .
The Securities and Exchange Board of India (SEBI) on Thursday, 14 May released a consultation paper proposing a sweeping overhaul of regulations governing exchange-traded derivatives, aiming to reduce the compliance burden on stock exchanges and simplify market processes. The proposals cover equity, currency, interest rate, and commodity derivatives and mark one of the most comprehensive structural reviews of the derivatives regulatory framework in recent years.
Key Proposals on the Table
At the heart of the consultation paper is a plan to merge, prune, and restructure large sections of SEBI's master circulars governing derivatives. The regulator has proposed eliminating the 'close-to-the-money' (CTM) option series in commodity options, arguing that the framework adds complexity and uncertainty for traders. SEBI noted that leading global commodity exchanges do not use the CTM structure, relying instead on standard in-the-money and out-of-the-money options. The regulator added that traders often find it difficult to assess the intrinsic costs embedded in CTM options.
SEBI has also proposed reducing the mandated frequency of Product Advisory Committee (PAC) meetings for non-agricultural commodities from the current schedule to just once a year, citing limited agenda items and logistical difficulties in convening members. Exchanges would, however, retain the discretion to call additional meetings as needed.
Streamlining Eligibility Norms and Disclosures
The consultation paper flags significant overlap in eligibility norms across index futures, currency futures, and currency options — including requirements for prior SEBI approval, separation of broker membership across segments, and mandatory clearing through a recognised Clearing Corporation. SEBI has proposed rationalising these overlapping requirements to reduce duplication.
On disclosures, the regulator has suggested shifting the publication of derivatives transaction data from newspapers to exchange websites, reflecting the digital shift in financial market communication. Additional proposals include increasing the discretionary powers of exchanges to tighten position limits and removing what SEBI described as outdated norms on broker certification and capital requirements.
What SEBI Has Clarified
SEBI has been explicit that the proposed changes are aimed at streamlining processes and eliminating duplication — not at diluting investor protection. The distinction is significant given ongoing market scrutiny of the regulator's approach to derivatives oversight, particularly following the heightened debate around retail participation in futures and options (F&O) trading.
This comes amid a broader SEBI push for ease-of-doing-business reforms across market infrastructure institutions (MIIs), which include stock exchanges, clearing corporations, and depositories.
Public Comments and Next Steps
SEBI has invited public comments on the consultation paper until 4 June. Stakeholders including brokers, exchanges, and institutional investors are expected to submit responses. Final guidelines, if adopted, would represent a material reduction in the regulatory overhead that exchanges currently manage across multiple overlapping circulars.
Point of View
And any perception that it is loosening oversight will draw fire. The framing of these proposals as 'process streamlining, not investor dilution' is deliberate, but the details warrant scrutiny: expanding exchange discretion over position limits, for instance, shifts regulatory judgment from a central authority to individual market operators. Whether that decentralisation improves efficiency or creates arbitrage opportunities between exchanges is a question the consultation process must answer. The move to digital-only disclosures is overdue, but the removal of CTM options — while globally aligned — will require careful transition management for commodity market participants who have built strategies around that series.
NationPress
6 Aug 2026
Frequently Asked Questions
What is SEBI proposing in its derivatives consultation paper?
SEBI has proposed a comprehensive overhaul of regulations governing exchange-traded derivatives, including merging and pruning master circulars, eliminating the close-to-the-money option series in commodity options, reducing Product Advisory Committee meetings, and shifting disclosures from newspapers to exchange websites. The proposals are open for public comment until 4 June 2025.
Why does SEBI want to remove the close-to-the-money option series?
SEBI argues that CTM options add complexity and uncertainty for traders, who may find it difficult to assess intrinsic costs. The regulator also noted that leading global commodity exchanges do not use the CTM framework, relying only on in-the-money and out-of-the-money options.
Will these changes reduce investor protection?
SEBI has explicitly stated that the proposals aim to streamline processes and eliminate duplication — not to dilute investor protection. However, the consultation process will allow stakeholders to flag any concerns before final rules are framed.
Who is affected by SEBI's proposed derivatives reforms?
The proposals primarily affect market infrastructure institutions — stock exchanges, clearing corporations, and brokers. Commodity traders, currency derivatives participants, and institutional investors in index futures will also be impacted by specific rule changes.
What is the deadline to respond to SEBI's consultation paper?
SEBI has invited public comments on the consultation paper until 4 June 2025. Stakeholders including exchanges, brokers, and institutional investors can submit their responses within this window.
