India's commodity derivatives markets were mired in skepticism and unease at the end of 2015 as they prepared for the impending transfer of regulatory authority from the Forward Markets Commission to the Securities and Exchange Board of India. These misgivings have been laid to rest, at least for now, following the unexpected emergence of SEBI as a catalyst for development. But the regulator needs to press ahead with its reform agenda.
Historically, participation in commodity derivatives trading in India was restricted to individual Indian traders, companies and producers, and limited to futures contracts, under which the parties agree to buy or sell assets at a specific time in the future at a specific price. Over the last decade, however, pressure has grown for a wider mix of derivative products, and for a widening of market participation to include mutual funds, banks and other investors. Both would help to increase the liquidity, depth and reach of the market.
