SEBI Revises Commodity Position Limits, Caps Penalty For Breaches At ₹2 Lakh

The Securities and Exchange Board of India (SEBI) has revised position limits for clients in the commodity derivatives segment and capped monetary penalties for breaches at ₹2 lakh.

The changes are aimed at easing compliance and follow representations from market participants, recommendations from the Working Group on agricultural commodity derivatives and the Commodity Derivatives Advisory Committee, as well as public comments.

How Has SEBI Changed The Penalty Framework?

Under the revised SEBI commodity derivatives rules, penalties for client-level open-interest violations will depend on the extent of the breach and will be imposed on the concerned member for each day of the violation.

For breaches of more than 2% of the prescribed limit, the penalty will be the lower of the amount calculated using the prescribed formula or ₹2 lakh. For breaches of up to 2%, the penalty will be capped at ₹10,000 or the amount calculated under the formula, whichever is lower.

Members will have to bring excess positions within the prescribed limit by the next trading day. If the breach continues, the exchange can square off the excess position without further notice.

What Happens In Case Of Repeated Breaches?

SEBI has also introduced additional consequences for repeated violations. If a trading member breaches the prescribed limit by more than 2% more than three times in a calendar month for the same commodity, the exchange will put the member in square-off mode for one day.

Where violations, including breaches of up to 2%, occur more than three times in a calendar month, an additional penalty equal to that imposed for the open-interest violation will apply.

However, this additional penalty will not apply when the breach occurs solely because of clubbing of positions. The penalties collected will be credited to the exchange's Investor Protection Fund.

What Has SEBI Changed For Commodity Position Limits?

SEBI has also changed the definition of a broad commodity, which could allow more agricultural commodities to qualify for higher client-level position limits.

An agricultural commodity will now be classified as broad if it is not a sensitive commodity and has an average deliverable supply over the previous five years of at least 10 lakh metric tonnes or ₹5,000 crore in monetary terms.

Under the revised framework, the client-level position limit will be linked to the deliverable supply available in a particular year. The limit will be 2% for broad commodities, compared with 1% for narrow commodities and 0.5% for sensitive commodities.

Commodities moving from the narrow to the broad category under the revised definition will initially retain the lower 1% limit for one year. Exchanges can consider raising it to 2% after a review.

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