The Securities and Exchange Board of India (Sebi) has proposed significant increases in position limits for agricultural commodity derivatives, with broad agricultural commodities seeing limits raised from 1% to 2% of deliverable supply and sensitive agricultural commodities increasing from 0.25% to 0.5%. According to The Financial Express, the regulator has also revised the classification criteria for broad agricultural commodities, now requiring either average deliverable supply of at least 10 lakh metric ton in the past five years or at least ₹5,000 crore in monetary terms. The increased limits aim to enhance liquidity, market depth and price discovery, given the rise in market participants since the current rules were introduced in 2017. As reported by The Financial Express, commodities shifting from narrow to broad category will maintain 1% position limits for one year before transitioning to the higher 2% limit following exchange review.
The Securities and Exchange Board of India (Sebi) has proposed a pilot program to allow select agricultural commodity derivatives to trade as cash-settled instruments before mandatory physical settlement. According to reports from The Economic Times, the regulator announced this initiative on Tuesday, targeting commodities like maize, groundnut, and chilli for the pilot framework. The initiative aims to boost liquidity and market confidence in agricultural contracts, addressing the current constraints in agricultural derivatives markets. As per The Economic Times, the proposal represents a major regulatory shift for India's agricultural commodity derivatives market, moving from financial to physical delivery to encourage more trading and better price discovery.
Under the proposed framework, exchanges may be allowed on a pilot basis to launch or revive delivery-based agricultural contracts that initially operate as financially settled products. As reported by The Economic Times, these contracts would later shift to compulsory physical settlement once predefined thresholds are met, including average daily traded volume, open interest levels, or a two-year period. The regulator has suggested that a couple of commodities could be considered under the proposed framework, with maize, groundnut and chilli being the primary candidates for the pilot program. According to The Economic Times, this temporary financially settled phase is designed to attract a wider range of participants and give exchanges time to build necessary infrastructure like warehousing and assaying systems.
Sebi has proposed comprehensive reforms to penalty provisions for position limit violations in commodity derivative contracts. As reported by The Financial Express, the regulator has capped penalties for more than 2% violation at ₹2,00,000, replacing the current system with no upper limit. Additionally, instances of more than 2% violation occurring more than three times in a month across the market will result in exchange-imposed square off mode for one day instead of the current one-week suspension. The regulator has also introduced additional penalties for members with more than three instances of both over 2% and up to 2% violation in a calendar month, with penalties equivalent to open interest violations. According to The Financial Express, these revised penalty norms aim to create a context-sensitive, inclusive and risk-aligned system while preventing discouragement of stakeholders from using formal risk management channels.
