SEBI revises commodity derivatives position limits, caps penalties for violations
In a circular dated 9 September 2026, SEBI said the existing position limits were introduced in 2017 and were aligned with market conditions prevailing at that time. The regulator said it had received representations from stakeholders seeking a review of position limits applicable to agricultural commodity derivatives as well as a cap on penalties for position limit violations.
The changes were made based on stakeholder representations, recommendations of the Working Group on the review of current regulatory norms applicable to the agricultural commodity derivatives segment, the Commodity Derivatives Advisory Committee (CDAC) and public comments.
SEBI has revised the definition of a Broad Commodity. An agricultural commodity will now qualify as a Broad Commodity if it is not a Sensitive Commodity and its average deliverable supply over the past five years is at least 10 lakh metric tonnes in quantitative terms or at least Rs 5,000 crore in monetary terms. The earlier framework required both criteria to be met.
SEBI has also doubled the overall client-level position limits for agricultural commodities. The limits have been revised to 2% of deliverable supply for Broad commodities, 1% for Narrow commodities and 0.5% for Sensitive commodities. The calculated limits will be rounded down to the appropriate number of zeroes.
Commodities that shift from the Narrow category to the Broad category following the revised definition will initially retain a 1% position limit for one year. After a review, the exchange may increase the limit to 2% if it is satisfied that the higher limit is appropriate.
SEBI has also revised the penalty framework for client-level open-interest violations. For a violation exceeding 2% of the prescribed position limit, the penalty will be the lower of the calculated amount or Rs 2 lakh. The calculation is based on the excess position, closing price, number of days for which the violation continued and a 2% rate.
For a violation of up to 2% of the prescribed limit, the penalty will be the lower of the calculated amount or Rs 10,000. The penalty can also be calculated using the near-calendar-month underlying futures closing price.
Members must reduce the excess position and bring it within the prescribed limit by the next trading day after the violation. If the violation continues, the exchange can square off the excess position without further notice to the member by placing orders on its behalf in the relevant client code.
SEBI has also prescribed consequences for repeated violations. If a violation exceeding 2% of the prescribed limit occurs more than three times for a trading member in a calendar month, the exchange will place the member in square-off mode for one day if the violation relates to the same commodity.
If the specified position-limit violations occur more than three times for a trading member in a calendar month, an additional penalty equivalent to the penalty charged for the open-interest violation will also be imposed. The full circular provides an exception where the violation arises solely because of clubbing of positions.
The penalty framework applies to violations at the client level, including positions held on the member's own account or positions of clients or clubbed clients, as specified in the circular.
Position limits are intended to prevent excessive speculation and concentration of positions among a few participants and to mitigate risks arising from concentrated exposures in commodity derivatives. SEBI's May 2026 consultation paper had noted that the existing limits were introduced in 2017 and that the commodity derivatives market had since evolved in terms of participants and product offerings.
The revised provisions amend Paragraphs 3.4.3 and 3.5.2 of SEBI's Master Circular for the Commodity Derivatives Segment dated 04 August 2023.
The circular comes into force with immediate effect. SEBI has directed recognised stock exchanges having a commodity derivatives segment to take the necessary steps and put systems in place for implementation.
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