Banks May Soon Be Allowed to Trade Commodity Derivatives: SEBI–RBI Proposal Explained

(as of November 7, 2025)

Introduction

India’s commodity markets may be entering a new phase of maturity. According to recent discussions, regulators — SEBI (Securities and Exchange Board of India) and RBI (Reserve Bank of India) — are evaluating a proposal to allow banks to participate in exchange-traded commodity derivatives.

Currently, banks are not permitted to directly trade or hedge using commodity derivatives on exchanges like MCX and NCDEX, which limits liquidity and pricing efficiency. If this proposal is implemented, it would mark one of the most significant reforms in India’s commodity market structure in over a decade.

This reform also aligns with SEBI’s broader push to increase institutional participation and deepen India’s financial markets.

 

Why SEBI and RBI Are Considering This Reform

1.Improve Market Liquidity

Banks bring large, stable capital pools. Their participation can:

• Increase daily trading volumes
  
  

• Reduce bid–ask spreads
  
  

• Improve contract rollover depth
  
  

2.Better Hedging for Corporates

Banks work closely with businesses that handle commodities:

• Metal and mining companies
  
  

• Agricultural processors
  
  

• Oil refiners and chemical firms
  
  

Allowing banks to hedge on exchange would make corporate risk management smoother and more direct.

3.Strengthen Price Discovery

Institutional trades make prices:

• More transparent
  
  

• Less volatile
  
  

• More closely aligned with global benchmarks
  
  

This helps India’s commodity markets become globally competitive.

 

What May Change? (Regulatory Direction Under Review)

Important: The goal is not speculation.
Any approval will likely include:

• Position limits
  
  

• Capital adequacy norms
  
  

• Real-time compliance reporting
  
  

• RBI oversight
  
  

 

Impact on Commodity Markets

Higher Trading Volumes

Bank participation increases market depth.

Reduced Volatility

Broader participation smoothens price swings.

Efficient Hedging for Businesses

Better risk management = more predictable margins.

Exchanges May Gain

Platforms like MCX and NCDEX could see:

• Higher turnover
  
  

• Increased institutional relevance
  
  

 

Impact on Different Investor Groups

 

Sectors Likely to Benefit

 

Conclusion

Allowing banks to trade commodity derivatives would be a structural reform for India’s markets.
It can:

• Enhance market liquidity
  
  

• Improve price discovery
  
  

• Strengthen corporate risk management
  
  

• Support India’s transition to globally aligned commodity trading norms
  
  

For investors, this development signals increasing maturity and institutional depth in commodity markets — an area to watch closely over the coming months.

 

Frequently Asked Questions

1. Can banks trade commodity derivatives today?
No, they currently cannot trade directly.

 

2. Why is this changing now?
To improve liquidity, price efficiency, and hedging accessibility.

 

3. Will this increase speculation?
Unlikely. Institutional participation generally reduces volatility.

 

4. Which commodities may be included first?
Gold, Silver, Crude Oil, Natural Gas, Base Metals, and selective Agri products.

 

5. What should investors do now?
Monitor sector movements, exchange volumes, and policy updates.

 

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