Sebi proposes doubling position limits in agri commodity derivatives, plans cap on penalties

Securities and Exchange Board of India has proposed a significant overhaul of position limit norms in agricultural commodity derivatives, including doubling client-level trading limits and introducing a cap on penalties for violations, in a move aimed at improving market liquidity and easing participation in the commodity derivatives segment.

In a consultation paper released on Tuesday, the regulator said the current position limit framework for agri commodities was introduced in 2017 and may no longer adequately reflect the evolution in market participation and product offerings over the years. Sebi noted that higher limits could improve liquidity, deepen market activity and strengthen price discovery in commodity futures trading.

At present, client-level position limits are linked to the “deliverable supply” of commodities and vary depending on whether a commodity is classified as broad, narrow or sensitive. Existing limits stand at 1% of deliverable supply for broad commodities, 0.5% for narrow commodities and 0.25% for sensitive commodities.

Based on recommendations from the Working Group on agricultural commodity derivatives and the Commodity Derivatives Advisory Committee (CDAC), Sebi has proposed doubling these limits to 2% for broad commodities, 1% for narrow commodities and 0.5% for sensitive commodities.

The regulator has also proposed relaxing the definition of a “broad commodity.” Currently, a commodity qualifies as broad only if it satisfies both quantitative and monetary thresholds related to deliverable supply. Sebi now proposes allowing commodities to qualify if they meet either of the two criteria, a change that could expand the number of commodities falling under the broad category.

To avoid sudden increases in trading exposure, Sebi has suggested a phased approach for commodities migrating from the narrow to broad category. Such commodities would initially continue with a 1% position limit for one year before exchanges can raise the limit to 2% after review.

Proposal for penalty structure

The market regulator has proposed revising the penalty structure for breaches in commodity derivatives trading. Currently, penalties for violations exceeding 2% of the prescribed limits do not have an upper cap, something market participants had flagged as excessive and potentially discouraging for formal hedging activity.

Under the revised framework, Sebi has proposed capping the penalty for violations exceeding 2% of position limits at Rs 2 lakh, whichever is lower between the formula-based calculation and the cap. For smaller breaches of up to 2%, the existing Rs 10,000 ceiling would continue.

The consultation paper also proposes stricter operational actions against repeated violations. Trading members breaching limits more than three times in a month could be placed in square-off mode for one trading day if the violations are linked to the same client. Additional penalties may also be imposed for habitual breaches.

Sebi said the proposed changes are intended to create a more “context-sensitive, inclusive and risk-aligned ecosystem” while balancing market development with safeguards against excessive speculation and concentration risks.

Public comments on the proposals have been invited until June 2, 2026.

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