The Securities and Exchange Board of India (Sebi) has implemented immediate changes to commodity derivatives position limits and penalty provisions, as reported by The Economic Times and Business Standard. The regulator has revised client-level position limit norms and penalty provisions for violations in the commodity derivatives segment, with the changes coming into force immediately from September 9, 2026. Under the revised framework, monetary penalties on trading members for client-level open interest violations will now be linked to the quantum or value of the violation, with charges applied for every day of violation. The changes come after representations from market participants, recommendations by the Working Group reviewing regulatory norms for agricultural commodity derivatives, the Commodity Derivatives Advisory Committee (CDAC), and feedback received through public consultation, as reported by The Economic Times. According to the latest circular, the penalty structure now caps violations at a fixed rupee amount rather than leaving it as an open-ended formula, providing members with a predictable worst case scenario rather than a number that scales indefinitely with price and duration. This represents the clearest Ease-of-Doing-Business signal in the circular, giving members a clear understanding of their potential liability.
According to The Economic Times and Business Standard, the new penalty structure differentiates between violation severity levels. For violations exceeding 2% of the prescribed limit, the penalty will be calculated as the limit exceeded multiplied by the closing price, number of days of violation and 2%, or ₹2 lakh, whichever is lower. Violations up to 2% of the prescribed limit will be calculated using the same formula or ₹10,000, whichever is lower. For options, penalties will be computed based on the near-calendar-month underlying futures closing price. The revised framework seeks to align the limits more closely with the deliverable supply available in a commodity, with the calculated limits rounded down to an appropriate number of zeroes. As per the latest circular, the formula prescribes monetary penalties on members for open-interest violations at the client level, whether on the member's own account or an aggregated (clubbed) client account, charged for every day the violation continues. A practical example shows a member exceeding its client-level limit by 500 MT for 3 days in a contract with a closing price of ₹20,000/MT, with the formula giving ₹6,00,000, but the circular caps this category of violation at ₹2,00,000, resulting in a penalty of ₹2,00,000.
As reported by The Economic Times and Business Standard, Sebi has strengthened enforcement mechanisms for repeated violations. If a violation of more than 2% is observed more than three times for a trading member in the same commodity in a calendar month, the exchange will put the member on square-off mode for one day. Additionally, if position-limit breaches are observed more than three times in a calendar month, the exchange will impose an additional penalty equal to the penalty charged for the open interest violation on the trading member. However, trading members will be exempted from this additional penalty where the violation arises only because of position clubbing. Trading 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. According to the latest circular, the mandatory next-day correction rule applies, with the member required to bring the position within the prescribed limit by the next trading day. If it does not, the exchange will square off the excess position on the member's behalf, in that client code, without further notice, and the exchange bears no responsibility for the consequences of that square-off.
According to The Economic Times and Business Standard, Sebi has revised the definition of a 'broad commodity' in the agri commodity derivatives segment. An agricultural commodity will now be classified as a broad commodity if it is not a sensitive commodity and its average deliverable supply for the past five years is at least 10 lakh metric tonnes in quantity or at least ₹5,000 crore in monetary terms. The position limit for clients will now be linked to the deliverable supply available in a particular year, with broad commodities having 2% position limits, narrow commodities 1%, and sensitive commodities 0.5%. The revised definition allows more agricultural commodities to qualify for higher client-level position limits, with commodities that move from the narrow category to the broad category continuing with the lower 1% limit for one year before potentially being raised to 2%. As per the latest circular, a commodity that moves from Narrow to Broad because of the revised definition does not immediately get the 2% limit. It retains the 1% Narrow-category position limit for one year, after which the exchange may raise it to the 2% Broad-category limit, following its own review and satisfaction. The circular does not prescribe specific criteria for that satisfaction test, leaving the assessment to the exchange's discretion. The revised framework doubles the overall client-level position limits for agricultural commodities, with the calculated limits rounded down to the appropriate number of zeroes.
As reported by The Economic Times and Business Standard, the circular applies to recognised stock exchanges with a commodity derivatives segment, with Sebi asking exchanges to take necessary steps and put systems in place for implementation. The existing position limit framework was introduced in 2017 and aligned with market conditions at that time, with the current changes based on stakeholder representations and recommendations from various committees. 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 revised framework combines higher flexibility for eligible agricultural commodities with tighter consequences for repeated breaches, marking a shift towards position limits and penalties that are more closely linked to market size and actual deliverable supply. The latest circular comes into force with immediate effect from September 9, 2026, with the only built-in delay being the one-year retention period for commodities newly classified as Broad Commodies, which continue at the 1% Narrow-category limit before the exchange considers raising it. All penalties collected will be credited to the Investor Protection Fund of the exchange, with Sebi also considering action against members in case of repeated violations. Exchanges will need to rebuild their position-limit monitoring and penalty-computation systems around the new formula, including the daily per-client, per-commodity calculation, the ₹2,00,000 and ₹10,000 caps, and the square-off logic for uncorrected violations.
