The market regulator has extended the suspension in trading in certain commodity derivatives till December 2024.
The Securities and Exchange Board of India (Sebi) on December 19, 2021 had issued directions to stock exchanges having commodity derivatives segment to suspend trading in derivative contracts in the commodities--paddy, wheat, chana, mustard seeds and its derivatives, soya bean and its derivatives, crude palm oil and moong—for a year.
This was done on inflation concerns, around the time of a few state elections. That November wholesale inflation had spiked to 14.23 percent. The index had remained in double digits for eight consecutive months beginning in April, mainly because of surging prices of food items.
Thereafter, the suspension was extended for one more year, beyond December 2022, to December 2023.
A latest press release from Sebi on the extension of the suspension said, “In continuation of the said directions, the suspension in trading in the above contracts has been extended for one more year beyond December 20, 2023 i.e. till December 20, 2024.”
In 2022, a team of researchers from IIM Udaipur, Jindal School of Government and Public Policy and Universidad Carlos III de Madrid had written that banning derivatives in the segment is futile.
They wrote, “ there is no evidence that derivatives trading led to higher prices or that the suspension had any effect in bringing down price variability. Rather, the decline in price levels was observed across all oils, irrespective of their derivatives trading status. Price surges are typically rooted in the underlying demand and supply factors, as observed in earlier studies.”
The researchers added, “The Report of the Expert Committee on Integration of Commodity Spot and Derivatives Markets (2018) also argued that outright bans erode the confidence of participants in the domestic derivatives markets. Evidence from past suspensions shows that once a contract is banned or suspended, it is difficult to bring back trading activity to even the pre-ban levels once the ban is revoked. Market participants have an easy choice to hedge their risks on international exchanges, where no such regulatory uncertainty exists.”
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