Contracts for purchasing or selling rights to buy or sell goods in future recognized as derivatives

The Ministry of Finance, under the Department of Economic Affairs, announced significant updates to the Securities Contracts (Regulation) Act of 1956, through two critical notifications that reshape the landscape of derivatives and commodity trading in India.

The first notification, numbered S.O. 1003(E), expands the definition of derivatives under the Act. It supersedes the previous notification from October 18, 2019, 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 recognized as derivatives. This move aims to enhance the transparency and regulation of derivative trading, ensuring a more robust legal framework for market participants.

In a complementary notification, S.O. 1002(E), the Ministry, in consultation with the Securities and Exchange Board of India (SEBI), has updated the list of commodities eligible for trading. This list encompasses 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.

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 tradable commodities and derivatives, the government seeks to enhance market liquidity, provide more hedging options, and promote agricultural and industrial sector participation in the commodity markets.

The list of notified commodities includes staples of the Indian agricultural economy, such as various types of grains, pulses, and oilseeds, alongside global commodities like gold, silver, and crude oil. This extensive list signifies the government’s intention to create a more inclusive market, enabling stakeholders across various sectors to participate in commodity trading, hedge against price volatility, and contribute to a more dynamic and transparent market ecosystem.

The 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.

These changes come into immediate effect, reflecting the government’s commitment to responsive and proactive market regulation. Market participants are encouraged to familiarize themselves with the new regulations and adjust their trading strategies accordingly to leverage the opportunities presented by this regulatory evolution.

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MINISTRY OF FINANCE

(Department of Economic Affairs)

NOTIFICATION

New Delhi, the 1st March, 2024

S.O. 1003(E).—In pursuance of the provision of sub-clause (D) of clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Economic Affairs vide number S.O. 3743(E), dated the 18th October, 2019, published in the Gazette of India, Extraordinary, Part-II, Section-3, sub-section (ii) dated the 18th October 2019, except as respects things done or omitted to be done before such supersession, the Central Government hereby declares a contract for the purchase or sale of a right to buy or sell, or a right to buy and sell in future, such underlying goods, as notified under clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), as a derivative for the purposes of the said Act.

[F. No. 17/2/2016-CD (part -II)]
Ms. SURBHI JAIN, Jt. Secy.

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MINISTRY OF FINANCE
(Department of Economic Affairs)
NOTIFICATION
New Delhi, the 1st March, 2024

S.O. 1002(E).—In exercise of the powers conferred by clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and in supersession of the notification of the Government of India in the Ministry of Finance (Department of Economic Affairs) number S.O. 3068(E), published in the Gazette of India, Extraordinary, Part-II, Section 3, sub-section (ii), dated the 27^th September, 2016, except as respects things done or omitted to be done before such supersession, the Central Government, in consultation with the Securities and Exchange Board of India established under section 3 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), hereby notifies the goods specified in the Schedule for the purposes of clause (bc) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), namely: –

SCHEDULE

[No. 17/2/2016-CD (part -II)]

Ms. SURBHI JAIN, Jt. Secy.