SEBI Chairman UK Sinha said on Friday the regulator is seeking legal clarity with respect to options trading in commodities which may require amendments to the Securities Contracts Regulations Act (SCRA), and is also in talks with the Ministry of Finance on the issue.

In a major push to strengthen the commodity derivatives market, SEBI had allowed options trading on exchanges last year, a long-pending demand of market participants.

So far, only futures contracts are permitted in the commodity derivatives trading space.

“The way options in commodities is being designed the market feedback is that theoretically there are three alternatives — the settlement should take place in physical delivery or in cash or should be settled based on price discovery,” Sinha said here.

“The consensus view is that we should get along with the third option — that settlement should take place based on the future price of that derivative.”

Final position

However, Sinha noted that the issue has entered “into a very interesting problem” on whether SEBI by itself can make amendments to its regulations to allow trading in options or “does it require going back to Parliament”.

Further, Sinha said SEBI is in talks with the Finance Ministry and “a final position will be taken shortly”.

The SEBI Chairman was speaking at an international conference on commodities derivatives.

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