Indian professors advocate a shift towards a more capital-efficient default framework for the country’s commodity derivatives market, aiming to lower hedging costs and boost participation amid recent regulatory reforms.
India’s commodity derivatives market cannot become genuinely useful for hedging unless it is cheaper to use. That is the argument made by professors at the Indian Institute of Management Bangalore, who say that current collateral demands often make domestic hedging more expensive than comparable overseas markets, discouraging participation and leaving liquidity thin. Their case is that firms trading globally priced commodities need a market that is both safe and capital-efficient, not one that forces them to lock up excessive funds just to manage price risk.
The professors’ remedy is to rethink how safety is funded. Instead of relying mainly on higher margins, they argue that clearing corporations should build larger backstops, including a stronger Settlement Guarantee Fund, or SGF, which can absorb losses if a member defaults. That idea has gained fresh relevance after the Securities and Exchange Board of India revised SGF norms for commodity derivatives clearing corporations in March 2026. According to reporting by The Economic Times and other Indian business publications, the regulator now requires stress tests to assume the simultaneous default of at least three clearing members and their associates, rather than two, and has also allowed it to grant relaxations on a case-by-case basis.
The broader point is that a clearing house does not rely on margins alone. If those deposits are trimmed, the SGF and other resources have to do more of the heavy lifting. The Bangalore professors say that could include risk-based contributions from members, so those with larger or riskier exposures pay more into the fund. They also want SEBI to permit committed bank credit lines for clearing corporations, and to consider contingent assessment powers that would let non-defaulting members contribute more in an extreme crisis. In the longer term, they say, regulators should also examine whether systemically important clearing corporations need limited liquidity access during stress, subject to strict safeguards.
SEBI’s recent easing of SGF rules suggests the regulator is, at least partly, moving in the direction of lower capital burdens for the market. But the central challenge remains unchanged: if margins stay too high, hedging stays too costly; if they fall too far without stronger safeguards, settlement safety is put at risk. The professors’ argument is that India does not have to choose between the two. With a better-funded default framework, exchanges could charge more risk-sensitive margins, widen participation and deepen liquidity without weakening the integrity of the clearing system.
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