September 20, 2016
The Managing Directors/Chief Executve Officers,
National Commodity Derivatives Exchanges
Sub: Permission for trading in futures contracts and modification in contract specifications at exchange level
1. As per Section 131 (4) of the Finance Act, 2015 all rules, directions, guidelines, instructions, circulars, or any like instruments, made by the erstwhile Forward Markets Commission (FMC) or the Central Government applicable to recognised associations under the Forward Contracts Regulation Act, 1952 (FCRA) would continue to remain in force for a period of one year from the date on which FCRA was repealed (September 29, 2015), or till such time as notified by SEBI, whichever is earlier.
2. Erstwhile FMC, from time to time, had issued various norms for National Commodity Derivatives Exchanges related to permission for trading in futures contracts and modification in contract specifications at exchange level. This circular is beingissued to consolidate and update such norms prescribed for National Commodity Derivatives Exchanges by the erstwhile FMC.
3. Accordingly, the following are prescribed:
a. Check-list of information/details to be submitted along with proposal for launch of new contract or/and for renewal of existing/earlier contracts
All proposals of exchange for launch of new contract and/or for renewal of existing/earlier contracts shall be accompanied by complete information covering all the points delineated in the check-list appended at Annexure 1. The parameters / items listed in the check-list for compliance are illustrative and not exhaustive. Any additional relevant parameter/information as deemed necessary may also be furnished while sending proposal for contracts.
b. Approval for futures contracts on continuous basis
The Exchange wise list of contracts approved for continuous trading is placed at Annexure 2. Approval for continuous trading in futures contracts is contingent upon volume and open interest at the Exchange. Continuous approval for futures trading in the said contracts is subject to the following terms and conditions:
i. Approval for continuous trading in futures contracts is subject to Rules, Byelaws and Regulations of the concerned Exchange.
ii. Approval for continuous trading granted is for the contract specifications and launch calendar as already approved. Contract specifications and contract launch calendar shall be notified well in advance to the market participants on the website of the Exchange.
iii. Except for the specifications permitted to be modified at exchange level (para 3c below), contracts specifications and contract launch calendar should not be changed without prior approval. For any modification in contract specification or contract launch calendar, the Exchange(s) shall give prior appropriate notice to the market participants. Once the contracts are commenced, no terms of the contract specifications should be changed without prior approval of SEBI.
iv. In case of contracts approved for continuous trading:
a. If Exchange decides not to launch new contract for trading, then Exchange shall inform market participants well in advance and shall also keep the regulator informed with adequate reasons for not launching of such contract.
b. If Exchange decides to de-list already running contract(s) having nil open interest, then exchange shall keep the regulator informed with adequate reasons for de-listing the contract(s).
c. The re-launch of new contracts in case of a and b above shall be with prior approval of SEBI.
v. The contracts approved for continuous trading in agri-commodities shall continue to follow the lean month expiry policy as laid down and shall be subject to any other directions as may be issued by SEBI from time to time. Also, apart from the approved quality standards, the Exchange should ensure that the commodity deposited should comply with the regulations laid down by the other authorities like Food Safety Standard Authority of India, Agmark, BIS etc.
vi. A limit on open position of each member and non-member client and the limit on daily price fluctuation as specified in the contract specification.
vii. The permission granted for the contracts is subject to daily Mark to Market settlement of outstanding contracts as per the procedure and delivery mechanism/process specified in the Bye-laws, the Rules and the Regulations of the Exchange.
viii. The Exchange, being the first tier regulator, shall ensure that there is no unhealthy speculative trading in the market, which may result in cornering or artificial rigging up or down of the prices by a particular member or group or class of members.
ix. The list of contracts available for trading on continuous basis shall be reviewed by SEBI from time to time.
c. Permission to allow modification in futures contract specifications at the exchange level
To ensure that Exchanges are enabled to respond to the market requirements quickly, National Commodity Derivatives Exchanges are permitted to modify the futures contract specifications related to Ticker symbol, Basis, Maximum order size, Trading unit, Delivery unit, Quotation base value, Tick size, Delivery centers, additional delivery centers, issue related to Premium/Discount, Quality parameters and its relevant aspects such as Quantity variation and Tolerance limit in the futures contract specifications. The permission to modify the above parameters of the futures contract specifications is subject to the condition that Exchanges shall invariably inform the market participants and the regulator well in advance before introduction of any modification in contract specifications with reasons for the modifications.
4. The provisions of this circular shall come into effect immediately.
5. Exchanges are advised to bring the provisions of this circular to the notice of their members and also to disseminate the same on their website.
6. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act 1992, read with Section 10 of the Securities Contracts (Regulation) Act, 1956 to protect the interest of investors in securities and to promote the development of, and regulate the securities market.
7. This circular is available on SEBI website at www.sebi.gov.in.
Division of Risk Management and Products
Commodity Derivatives Market Regulation Department
Download Annexure 1 and Annexure 2