SEBI Amends Staggered Delivery Period in Commodity Future Contracts

The Securities and Exchange Board of India (SEBI), the regulatory authority for the securities market, has recently issued a circular that modifies the staggered delivery period for commodity futures contracts. This circular, effective from July 1, 2024, aims to address the concerns raised by market participants and is based on deliberations by SEBI’s Commodity Derivatives Advisory Committee (CDAC).

What is Staggered Delivery and Period Before This Amendment

In commodities trading, all futures contracts, except those for energy, require compulsory delivery. Therefore, if a buyer does not wish to take delivery, they must close the contract before the staggered delivery period starts. This rule applies to all compulsory deliverable contracts, whether agricultural or non-agricultural.

The staggered delivery period is the time that starts a few working days before the contract expires and ends on the expiry date. According to SEBI guidelines, this period must last at least five working days. For example, if a contract expires on June 30, the staggered delivery period would begin on June 25.

Understanding the key pointers in detail:

1. Background

On August 4, 2023, SEBI had previously published a ‘Master Circular for Commodity Derivatives Segment’, which encompassed certain stipulations in respect to stock exchanges and clearing corporations operating in the segments of commodities derivatives. The Master Circular contained an entire chapter dedicated solely to delivery and settlement procedures.

2. Minimum duration of staggered delivery period

This circular amends paragraph 11.1.3 of the Master Circular namely minimum duration, with regard to the staggered delivery period for commodity futures contracts. The revised paragraph reads “minimum duration of the staggered delivery period shall be at least three working days”.

3. Rationale

Therefore, this modification was made after receiving representations from market participants and deliberations by SEBI’s CDAC on them; this shows that there was feedback received from all stakeholders in the commodity derivatives market.

4. Effective date

The circular will be effective from July 1, 2024, meaning that the revised minimum duration for staggered delivery will apply to contracts where staggered delivery is scheduled after this date. Previously, this duration was not explicitly stated, leading to diverse practices across the segment.  

5. Compliance and dissemination

SEBI has advised stock exchanges and clearing corporations to bring the provisions of this circular to the notice of their members and disseminate the same on their respective websites. This ensures that market participants are aware of the change and can take necessary actions to comply with the revised requirements.

6. Legal authority

This circular has been made under section 11(1) of the Securities and Exchange Board Act, 1992 which enables SEBI to protect the interests of investors in securities and promote and regulate the securities market.

7. Approval

This circular has been issued after following all the internal procedures and approvals, by a competent authority authorized by SEBI.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.