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Farm goods that have long remained shut out of cash settlements may be in for a pivotal shift, potentially deepening derivatives trading in India's vital commodities sector. A regulatory panel formed by the Securities and Exchange Board of India (Sebi) has greenlit cash settlements up to fixed thresholds in select agriculture commodities, two people aware of the discussions said, balancing the need to deepen the sector while minimizing the risks.
Currently, physical delivery is mandatory for all farm derivatives, meaning traders must hand over or take receipt of the physical goods once the futures or options contract expires.
While this keeps the critical agriculture segment free of excessive speculation and keeps contract prices aligned with real-world prices, it also limits participation and keeps the farm derivatives sector shallow. Meanwhile, metals and energy derivatives have boomed on policy certainty , unlike farm derivatives which have been subject to bans over the years.
In December, chairman Tuhin Kanta Pandey said the working group is examining whether the regulatory framework governing margins, position limits, and delivery and settlement mechanisms can be optimized without compromising market integrity.
“One of the suggestions is that when you are introducing a contract, can we have such a contract which has a threshold up to which it is cash settled? Once you reach this threshold, you can make it delivery-based. This was discussed in the working group and has been suggested to Sebi,” one of the two people cited above said on the condition of anonymity.
The working group submitted its report to Sebi in February, and the regulator's Commodity Derivatives Advisory Committee (CDAC) has backed the suggestion, the people cited above said. Sebi is now expected to issue a consultation paper for public feedback. A query emailed to Sebi remained unanswered.
"The proposal is to have cash settlement up to a certain extent as deemed appropriate by the regulator in narrow commodities such as pepper, turmeric, guar, dhaniya, etc, on which derivatives are offered by NCDEX," said the second person.
Agricultural commodity derivative contracts are classified into three categories—broad, narrow and sensitive. Commodities that frequently face government interventions such as stock limits, import-export restrictions, trade barriers, or have seen repeated price manipulation over the past five years are termed “sensitive”.
Commodities that are not sensitive and have an average deliverable supply of at least one million tonnes and a market value of ₹5,000 crore over the last five years are classified as “broad”. All remaining commodities fall under the “narrow” category.
Narrow commodities, currently allowed in the agri derivatives segment, tend to be politically less sensitive and thus the recommendation of the working group to Sebi might be considered favourably, said the second person.
The National Commodity & Derivatives Exchange and the Multi Commodity Exchange of India both opened shop in 2003, after the government of Atal Bihari Vajpayee ended a four-decade ban on commodity derivatives trading. While NCDEX focussed on agricultural commodities, MCX specialized in metals and energy.
However, their fortunes could not have been more different: In FY26, NCDEX's total futures turnover stood at a paltry ₹1.4 trillion, while total options premium turnover stood at ₹209 crore. In the same year, MCX clocked total futures turnover of ₹165 trillion and options premium turnover of ₹16.72 trillion. The key reason: Trading in farm derivatives have remained under the tight grip of the government and the regulators given their direct and immediate impact on livelihoods, while metals and energy are more removed from the common man.
"Confidence has to be rebuilt in the ecosystem after very many policy changes in the commodity derivatives segment (CDS). So, this recommendation for cash settlement in narrow commodities is a step in that direction," said Harish Galipelli, director of ILA Agri, a South India-based trader in agri-derivatives.
The working group's recommendation, if it bears fruit, augurs well for NCDEX, where broad and sensitive commodities have been banned in phases since 2007. Queries emailed to NCDEX remained unanswered.
The proposed move is also intended to address practical challenges in physically settling contracts for commodities with seasonal or limited availability. “The seasonality of narrow commodities is limited. You cannot have one contract in every season, because in some seasons, the farmer is sowing it, but they are still expected to deliver the product,” said the first person.
Agri-derivatives trading volumes have remained subdued for years, due to the ongoing ban on futures trading in agricultural commodities such as wheat, paddy, chana, mustard seed, soyabean, moong and crude palm oil. The suspension, first imposed in 2007 and later extended until 31 March 2027, was aimed at curbing food inflation and preventing excessive speculation in essential farm commodities, at a time retail prices were surging. The prolonged ban has reduced the range of farm products available for trading on exchanges and constrained growth in the agri derivatives ecosystem.
Sebi began overseeing CDS in September 2015, after the erstwhile regulator Forward Markets Commission (FMC) was merged with it. The FMC was overseen by the Ministry of Consumer Affairs.
Apoorva is a Mumbai-based journalist at Mint who covers the Securities and Exchange Board of India (SEBI), tracking the pulse of India’s capital markets, regulatory developments and the people who operate within them. She holds a postgraduate diploma in business and financial journalism from the Asian College of Journalism, where she developed a strong foundation in markets, companies, and economic policy. She began her journalism journey with an internship at Bloomberg, where she worked across beats such as real estate, infrastructure, capital markets, and deals, which helped her understanding of business and finance.<br><br>She is guided by the belief that everything in this world can be explained in simple and fewer words, and that idea shapes how she approaches her writing. She aims to cut through complexity and present nuanced regulatory and financial developments in a way that is both accessible and meaningful to readers.<br><br>When she is not tracking market chatter, Apoorva can usually be found deep into a fiction novel or out on a long run. She is also a trained classical dancer in Bharatanatyam, Mohiniyattam, and Kathakali.
Ram Sahgal is a deputy editor at Mint. He has over 20 years of experience in journalism, with previous roles at The Intelligent Investor, Bombay Times, The Economic Times, and The New Indian Express. Between his media roles, he briefly worked at a commodities exchange before returning to his true passion, business journalism. Ram graduated in liberal arts from St Xavier’s College, Mumbai, where he studied films, which explains his move to Bombay Times, where he covered the film industry during the rise of Sunny Deol and Sanjay Dutt. He took a leap of faith to transfer to The Economic Times, and thanks to his restless mind, later moved to cover the commodities beat. Over the past three years, Ram has been tracking the stock markets at Mint. His focus areas include writing about market infrastructure institutions, brokerages, derivatives, and related regulations. His hobbies include spotting trains and understanding the locomotives that power them. In his free time, he takes his octogenarian mother out for drives and goes to the cinema with her on weekends. If he has a dream, it is to write a screenplay for a movie. For now, he enjoys viewing market data on NSE and BSE, observing the shifting mood of Mr Market, and conversing with market experts.
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