A derivative includes security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security
The Finance Ministry has notified list of 104 commodities under the Securities Contracts (Regulation) Act, 1956 to be used for derivatives. These include 10 cereals & pulses, 11 types of oilseeds, oilcakes and oil, 13 types of spices, three types of fruits and vegetable beside others.
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All these changes are implemented with immediate effect.
In consultations with market regulators and the Securities and Exchange Board of India (SEBI), the Ministry issued two notifications. The notification, number 1003 (E) dated March 1 expands the definition of derivatives under the Securities Contracts (Regulation) Act, 1956. It will replace the 2019 notification but retains the legal standing of actions taken prior to this change. Under this new directive, contracts for purchasing or selling rights to buy or sell goods in the future are officially recognised as derivatives.
Originally, the act says commodity derivative means a contract for the delivery of such goods, as may be notified by the Central Government in the Official Gazette and which is not a ready delivery contract. Otherwise, it means contract or differences, which derives its value from prices or indices of prices of such underlying goods or activities, services, rights, interests and events, as may be notified by the Central Government, in consultation with SEBI.
Further, a derivative includes security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security. It could also mean a contract which derives its value from the prices, or index of prices, of underlying securities. The second notification has updated the list of commodities eligible for trading.
This list includes a wide range of goods under various categories such as cereals and pulses, oilseeds, spices, metals, precious metals and more, extending to energy sources, chemicals and even services like freight and weather. The inclusion of a diverse array of commodities from agricultural products like rice, wheat and spices to metals and energy resources like crude oil and natural gas reflects the government’s aim to diversify the commodity market and provide more trading opportunities.
According to experts, these updates mark a significant shift in the regulatory framework governing financial markets in India, particularly in derivatives and commodity trading. By defining a broader spectrum of goods and financial instruments as tradeable commodities and derivatives, the Government seeks to enhance market liquidity, provide more hedging options and promoting agricultural and industrial sector participation within commodity markets.
A tax solution portal, TaxGuru highlighted that these notifications are a part of the Government’s ongoing efforts to reform and strengthen the financial and commodity markets in India. By updating and expanding the legal framework, the Ministry of Finance aims to ensure that India’s financial markets remain competitive, resilient and capable of supporting the country’s economic growth and stability.
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These changes reflect the Government’s commitment to responsive and proactive market regulation. “Market participants are encouraged to familiarise themselves with the new regulations and adjust their trading strategies accordingly, to leverage the opportunities presented by this regulatory evolution,” the portal advised.
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