Securities and Exchange Board of India

04.02.2020

Capital Market

Performance review of the commodity derivatives contracts

MANU/SDER/0002/2020

1. The primary objective of the commodity derivatives market is to provide credible future price signals to market participants and an effective platform for hedging the price risks. In order to ensure that the derivatives contracts are closely aligned to the physical markets, it is imperative to have a framework to evaluate the performance of these contracts based not merely on statistics regarding delivery and trade volumes but also on the strength of a comprehensive empirical assessment after considering all relevant information, pertaining to the performance of a derivative contract during the relevant period of time.

2. Keeping the above in view and in consultation with the Commodity Derivatives Advisory Committee (CDAC), the following has been decided:

2.1. All recognized stock exchanges shall review the performance of all contracts traded on their exchanges, in commodity derivatives segment, as per the parameters laid down in the Circular.

2.2. The said performance review shall be consulted with the Product Advisory Committee (PAC) constituted in terms of SEBI Circular no. SEBI/HO/CDMRD/DNPMP/CIR/P/2019/89 dated August 07, 2019 on the subject of "Product Advisory Committee".

2.3. The said performance review along with the methodology adopted in evaluation, if any, shall be disclosed by the stock exchanges on their website prominently.

2.4. The said performance review shall be conducted on an annual basis for each financial year and shall be disclosed by 30th June of the following financial year.

3. The performance review of the commodity derivatives contracts shall be based on various parameters for each commodity as illustrated in Annexure-I.

4. This Circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

5. The Circular would be effective from April 01, 2020. The stock exchanges shall be required to undertake and disclose performance review of all contracts traded on their exchange from FY 2019-20.

6. Exchanges are advised to:

i. to make necessary amendments to the relevant bye-laws, rules and regulations.

ii. bring the provisions of this circular to the notice of the stock brokers of the Exchange and also to disseminate the same on their website.

iii. communicate to SEBI, the status of the implementation of the provisions of this circular.

Tags : Review Commodity derivatives Contracts

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