Category A, B and C modifications

A commodity futures contract is not frozen in stone the day it launches. An exchange can, and does, tweak its terms over time — but not all tweaks are equally serious, and not all of them can be decided by the exchange alone.

The workbook sorts every possible change into three buckets, A, B and C, running from minor to material. The bucket a change falls into decides who has to approve it before it can happen.

Any modification to an existing contract must be intimated to the market at least 10 days in advance.

Category A covers non-material changes — symbol, order size, tick size, strike levels, number of strikes and similar items. Exchanges can make these on their own, subject only to the 10-day advance notice.

Category B covers a heavier set of terms — expiry date, trading unit, delivery centre (including adding a new delivery centre), delivery unit, quality specifications, premium/discount, and the allowable open position limit. These can be changed by the exchange with approval from internal committees: the Product Advisory Committee and the Regulatory Oversight Committee, the latter approving post facto.

Category C covers the most material changes, requiring regulatory approval from SEBI itself, after deliberation within both the Product Advisory Committee and the Regulatory Oversight Committee. This category includes the contract launch calendar, the Daily Price Limit (DPL), the Due Date Rate/settlement rate methodology, the tender period, and the staggered delivery period start date for the near month. Every Category B and C change, like Category A, must be announced to the market at least 10 days before it takes effect.

An exchange wants to reduce the tick size on its castor seed futures contract from Rs 2 to Rs 1 per quintal. This is a Category A change — the exchange can make it directly, and simply notifies the market 10 days ahead of the change taking effect.

Separately, the same exchange wants to add a new additional delivery centre for castor seed. This falls under Category B — the exchange needs sign-off from the Product Advisory Committee, with the Regulatory Oversight Committee reviewing it post facto, before announcing the change with the same 10-day notice.

Finally, the exchange wants to shift the staggered delivery period start date for the near-month castor seed contract, a change to the delivery calendar itself. This is Category C — it must be deliberated by both committees and then formally approved by SEBI before it can be announced, again with at least 10 days' notice before it comes into effect.

Chapter 6 (Trading Mechanism), in the section on contract specifications, sets out the three categories side by side with their approval routes, right after listing the full set of items every contract specification must define (delivery logic, quality specifications, tender period, delivery period, delivery default penalty, and more). Expect a matching question — which category does a given item (expiry date, tick size, DPL, delivery centre) fall into — and a question on the common 10-day notice requirement across all three categories.

• All three categories share the same 10-day minimum advance notice — the difference between them is who approves the change, not how much notice the market gets.
• Category B needs internal committee approval; only Category C needs SEBI's approval. Candidates often assume any "material-sounding" change (like adding a delivery centre) needs SEBI sign-off — adding a delivery centre is Category B, not C.
• The staggered delivery period start date is Category C, while an additional delivery centre is only Category B — two delivery-related items sitting in different categories is a common trap.