SEBI Clarifies Margin Exemptions for Commodity Derivatives Positions Supported by Early Pay-In of Certified Goods

The Securities and Exchange Board of India (SEBI) has issued a regulatory clarification regarding the Early Pay-In (EPI) mechanism in the commodity derivatives market, introducing greater flexibility for clearing corporations in the treatment of margin requirements for eligible positions backed by certified goods.

Through a circular dated June 19, 2026, SEBI amended the provisions relating to the Early Pay-In Facility contained in the regulatory framework governing commodity derivatives trading and settlement.

Continued Availability of Early Pay-In Facility

Under the revised provisions, clearing corporations are required to continue providing the Early Pay-In facility, enabling market participants to deposit certified commodities in warehouses accredited by the clearing corporation against applicable commodity derivatives contracts.

The mechanism is intended to support delivery-based settlement by allowing eligible participants to place certified goods with approved warehouses before settlement obligations arise.

Margin Exemption Flexibility for Clearing Corporations

SEBI has clarified that where positions are backed by an Early Pay-In of certified goods, clearing corporations may exempt such positions from various margin requirements based on their internal risk assessment and risk management framework.

However, the exemption does not extend to Mark-to-Market (MTM) margins. Clearing corporations will continue to collect MTM margins from participants holding positions covered under the Early Pay-In mechanism.

The revised framework therefore permits risk-based relaxation of margins while retaining MTM margin collection to address daily price movement risks.

Background of the Revision

The regulatory change follows industry representations and recommendations emerging from the review of the delivery and settlement framework for agricultural commodity derivatives.

SEBI noted that the revision was considered after deliberations by the Working Group on Delivery and Settlement Framework for Agricultural Commodity Derivatives and subsequent discussions within the Commodity Derivatives Advisory Committee (CDAC).

Effective Date and Implementation Requirements

The revised provisions will become effective from September 21, 2026.

Stock exchanges and clearing corporations operating commodity derivatives segments have been directed to implement the necessary technological and operational changes before the effective date and communicate the revised framework to their members and market participants.