Sebi grants relief to exchanges for Product Advisory Committee meetings on agri contracts

Exchanges have received a relaxation from market regulator Sebi regarding the required number of meetings that their product advisory committee (PAC) on agricultural commodities needs to convene in a year.

“The PAC shall meet at least twice a year and more frequently as and when required. However, in case of agricultural commodities, the PAC shall meet at least once a year,” the Sebi circular issued on June 12 said. The earlier circular had stated that the PAC shall be required meet at least twice a year and more frequently as and when required irrespective of the group of commodities.

One commodity exchange had submitted a proposal to Sebi, seeking to reduce the number of mandatory PAC meetings to one per year for agricultural commodities. The argument was that agricultural commodities are subject to seasonal harvest cycles which influence the availability of members of the committee, along with other market dynamics. Seasonality plays a pivotal role in the trading of agricultural commodities, with factors like planting, harvesting and weather conditions directly impacting supply and demand as well as quality of the harvest.

This seasonality, coupled with their economic importance and diverse participation, makes agricultural commodities a unique and dynamic segment of the commodity futures market. Because of this reason, exchanges try to conduct the PAC meetings of agricultural commodities prior to the harvest months so they can incorporate changes, if required, prior to the beginning of a new crop season. Such parameters, once finalized, usually remains intact for the rest of the year.

Once the PAC’s meeting is held, no further changes to the contract specifications are generally required, as the key attributes remain consistent for the rest of the season. Hence, a single mandatory PAC meeting will effectively fulfil the regulator’s overall objectives. Additionally, the exchange will have the discretion to convene additional PAC meetings if needed, ensuring flexibility to address any unforeseen developments.

It was also highlighted that product-related changes, in case of commodity derivatives market, is not very frequent. Frequent changes in the product design may disrupt the participation in the contract, hence exchanges make minimal changes in the product design of any derivatives contract once it gains market traction and acceptability.

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The said exchange had also requested for relief regarding quorum of the meetings, which was denied. Exchanges are required to maintain a quorum of 50 percent for every PAC meeting. Sebi was of the view that in order for meaningful discussion to take place during the PAC meeting, a quorum of minimum 50 percent cannot be dispensed with. Exchanges were advised to give the option to the PAC members to join in virtual mode.