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India Extends Suspension of Farm Commodity Derivatives Trading

India has prolonged the ban of trade in important farm commodity derivative contracts until late 2024.

India, the world’s biggest importer of vegetable oils and a significant maker of wheat and rice has extended the suspension of trading in derivative contracts of key farm commodities into late 2024 to address food inflation concerns.

SEBI’s 2021 Suspension:

The Securities and Exchange Board of India (SEBI) initially ordered a year-long suspension of futures trading in key farm commodities in 2021, a notable decision given that futures trading had been permitted since 2003. 

This suspension was extended until December 20, 2023, last year.

Further Extension to December 20, 2024:

SEBI, in a recent notification, has extended the suspension of trading in futures contracts until December 20, 2024. 

The affected commodities include soybean and its derivatives, crude palm oil, wheat, paddy rice, chickpea, green gram, and rapeseed mustard.

Sandeep Bajoria, CEO of Sunvin Group, a vegetable oil brokerage, expressed disappointment, citing the need for a hedging mechanism in the Indian vegetable oil industry to navigate global market turbulence.

Addressing Edible Oil Imports:

India, which imports nearly two-thirds of its edible oil requirements, spent a record $20.8 billion on imports in the 2022/23 financial year. 

The move to extend the suspension of derivatives trading comes as the government seeks to stabilize prices, especially with state elections soon and a general election on the horizon.

The government has implemented export restrictions on wheat, rice, and sugar to prevent food commodity price increases. 

It links the rise in food commodity prices to futures trading, leading to the expected extension of the suspension.

Impact on Commodity Exchanges:

The extension notably affects India’s National Commodity and Derivatives Exchange (NCDEX), which derives a significant volume from trading in farm commodities. 

The Multi Commodity Exchange is also affected by the government’s decision.

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