SEBI Proposes Doubling Position Limits For Agricultural Commodity Derivatives, Caps Penalties

India's markets regulator has proposed doubling client-level position limits for agricultural commodity derivatives and introducing a ceiling on penalties for breaches in a move aimed at deepening liquidity and improving price discovery in the commodities market.

The proposals were laid out in a consultation paper issued on Tuesday, with comments invited until 02 June 2026. The existing position limits were set in 2017 and the regulator said the market has changed since then in terms of participants and product offerings.

What Is Being Proposed

Position limits are caps on the number of contracts a trader can hold in a specific commodity at any point. They exist to prevent excessive speculation and stop large positions from concentrating in the hands of a few participants. Under the current framework, those limits have not been revised in nearly a decade.

The proposed changes across commodity categories are as follows:

• Broad agricultural commodities: Position limit raised to 2% of deliverable supply from the current 1%.

• Narrow commodities: Raised to 1% from 0.5%.

• Sensitive commodities: Raised to 0.5% from 0.25%

All three categories are being doubled from their existing levels.

Easing The Broad Category Definition

The regulator has also proposed relaxing the criteria used to classify a commodity as broad. Currently, a commodity qualifies only if its average deliverable supply over the past five years is at least 10 lakh metric tonnes and its value is at least ₹5,000 crore. Both conditions must be met simultaneously.

The Securities and Exchange Board of India (SEBI) has proposed replacing the word “and” with “or”, so that meeting either criterion is sufficient. Exchanges had flagged to the regulator that very few commodities could satisfy both conditions under the existing definition, limiting the number of commodities that qualify for the higher position limit.

For commodities moving from narrow to broad under the revised definition, the Securities and Exchange Board of India has proposed a phased approach. Such commodities would stay at a 1% position limit for one year before an exchange review determines whether the limit can be raised to 2%.

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Revised Penalty Framework

The regulator has also proposed changes to how penalties are applied when position limits are breached. Currently there is no ceiling on penalties where the breach exceeds 2% of the prescribed limit. SEBI said capping such penalties would create a more context-sensitive and risk-aligned regulatory framework.

Under the revised proposal, if a breach of more than 2% occurs more than three times for a trading member in a calendar month and pertains to the same client, the exchange would place the member in square-off mode for one trading day.

If violations across both breach categories exceed three times in a month, an additional penalty equal to the amount charged for the relevant breach would also apply.

Sources:

Money Control

NDTV