SEBI:Ban on futures trading on 7 Agricultural commodities till Jan 25

The Commodities market regulator, the Securities and Exchange Board of India (SEBI), has extended the ban on the future trading of seven agricultural commodities- soybean and its derivatives, crude palm oil, wheat, rice(non-basmati), moong, chana and mustard seed till January 2025.

According to the SEBI notification issued on 18 December 2024, this has been done to check speculation in this commodity and keep in check food inflation in the country.

In December 2021, SEBI banned future trading in these seven agricultural commodities for a year. It was extended for one year in December 2022 and again in December 2023 for a year. 

The ban prohibits the launching of new contracts and trading in existing ones on all SEBI-recognised commodity exchanges. 

The future market is a market where an attempt is made to discover the future price of a commodity, taking into consideration the demand and supply of the commodity.

Reason for Extending the Ban 

• The government fears that speculation in the future trading of these agricultural commodities will lead to a rise in the prices of agricultural commodities in the country.
• This will further the country's food inflation.
• Due to climate change-related events, the production of agricultural commodities in India is fluctuating. 
• This has led to an increase in the prices of many essential agricultural commodities.
• India has almost banned the export of wheat and rice from India to ensure an adequate supply of essential agricultural commodities in the country.

What is a Commodity Market?

Commodity market refers to a market where commodities are bought and sold. 

A commodity is a tangible good used as input for producing other goods such as rice, wheat, crude oil, natural gas, gold, silver, etc.

The commodities are traded in the spot market, e.g., mandis, as derivatives in the future market.

In the spot market or cash market, the buyer pays cash to the seller and the goods are delivered by the seller to the buyer on the spot. In India, the spot market is regulated by the state government.

Future Market

The commodities are also traded in the future market in the form of derivatives contracts.  The commodities derivative contracts in India are traded on a commodity exchange or a separate dedicated platform set up for commodities trading on traditional stock exchanges like NSE and BSE. 

A Futures market is an exchange where investors buy and sell commodities and future contracts for delivery on a specified future date. 

A future contract is a contract between the buyer and the seller where the buyer agrees to buy the derivatives at a specified date in future at a pre-decided price. 

Regulator of the Commodity Market in India 

SEBI has regulated the Commodities derivative market since 28 September 2015. Earlier, it was regulated by the Forward Market Commission, which was subsequently abolished, and its power was transferred to SEBI.

Recognised Commodities Exchange in India 

There are three SEBI-recognised commodities exchanges in India.

Chairperson  of SEBI: Madhabi Puri Buch

Headquarters of SEBI: Mumbai