Sebi to enable commodity co-location by mid-2027
India's commodity markets are set to gain high-speed infrastructure access as the regulator moves to align rules with equity standards.
The Securities and Exchange Board of India is expected to approve co-location services for commodity markets in the first half of 2027. This decision allows firms to place servers directly within exchange data centers. The move reduces order execution latency to the millisecond level.
Co-location is currently prohibited in the commodity segment. It has been available in equity markets for over two decades. The new rule aligns commodity trading infrastructure with existing financial market standards.
Infrastructure access speeds up execution
Traders gain direct proximity to exchange trading engines. This physical closeness cuts the time orders take to reach the market. High-frequency strategies benefit most from this reduced latency. According to GN markets/commodities (en-US), every millisecond counts in these operations.
Tighter bid-ask spreads are expected as a result. Real-time price discovery improves with faster information flow. Institutional players can deploy complex algorithms more effectively. This mirrors the liquidity deepening seen in equity markets after co-location was introduced.
Foreign investors seek faster entry
Foreign portfolio investors are the primary drivers of this demand. They require low-latency access to participate aggressively in Indian markets. Current rules restrict them to cash-settled non-agricultural derivatives. This limits their ability to take sophisticated positions.
Sebi has proposed expanding FPI access to physically settled contracts. This includes non-agricultural commodity derivatives. FPIs must close or roll positions three days before expiry. Failure to comply triggers automatic transfer to a designated trading member.
Regulatory process remains under review
The rollout timeline depends on Sebi's internal assessments. The regulator may initially restrict access to non-agricultural segments. Agricultural derivatives carry mandatory delivery obligations that complicate foreign access. A consultation paper issued in August outlined these specific changes.
