The Securities and Exchange Board of India (Sebi) eased position limits for agricultural commodity derivatives and revised penalties for breaches, in a move aimed at making it easier for market participants to trade.
The circular issued on Wednesday revises provisions governing position limits and penalties under Sebi’s Master Circular for the commodity derivatives segment. The regulator said the existing limits, introduced in 2017, were being reviewed following stakeholder representations, recommendations from a working group and the Commodity Derivatives Advisory Committee, and public comments.
Position limits are a risk-control tool in commodity markets. They cap the number of contracts a trader can hold in a commodity to prevent excessive speculation, concentration and potential price manipulation. The limits are calculated based on a commodity’s deliverable supply, with client-level open positions linked to that supply.
The revised client-level position limits will now be based on annual deliverable supply and doubled to 2% for broad commodities, 1% for narrow commodities and 0.5% for sensitive commodities. Commodities moving from the narrow to broad category will initially retain the 1% limit for a year, after which exchanges may raise it to 2% following a review.
Agricultural commodities are classified as broad, sensitive or narrow. Commodities that frequently face government interventions, such as stock limits, import-export restrictions or trade barriers, or have seen repeated price manipulation over the past five years, are classified as “sensitive”.