SEBI Chairman has announced that the regulator is reviewing the settlement price framework for derivatives, particularly around expiry. The review aims to address concerns about price manipulation and speculative distortions at contract expiry. SEBI also plans to improve liquidity in non-agricultural commodity derivatives. The broader vision articulated is markets that serve three functions: mobilising capital, managing risk, and maintaining investor trust. No final rule changes have been announced yet.

Derivatives are financial contracts whose value is derived from an underlying asset — stocks, indices, commodities, or currencies. In India, equity derivatives (futures and options) are regulated by SEBI, while commodity derivatives on recognised exchanges are also under SEBI's purview since the merger with FMC in 2015.

The settlement price at expiry is critical because it determines the final profit or loss on all open derivative contracts. If this price is manipulated — through concentrated trading in the last minutes of expiry — it harms retail participants and distorts price discovery in the underlying cash market. SEBI's review of the settlement price framework targets exactly this vulnerability.

Non-agricultural commodity derivatives (metals, energy) have historically suffered from thin liquidity compared to equity derivatives. Thin markets are easier to manipulate and less useful for genuine hedgers like importers or manufacturers. SEBI's plan to boost liquidity here is part of expanding the functional depth of Indian capital markets.

The three-pillar vision — capital mobilisation, risk management, and trust — maps directly to the textbook functions of financial markets. Examiners test whether aspirants understand that markets serve real-economy purposes beyond speculation: channelling savings into investment, allowing businesses to hedge input costs, and providing price discovery. SEBI's current review signals a regulatory shift toward market quality, not just market size.