SEBI’s consultation on commodity derivatives: Enhanced position limits and reworked penalty structure
The Securities and Exchange Board of India has placed before the market a detailed consultation paper proposing two major sets of changes for the commodity derivatives ecosystem, with a clear focus on agricultural contracts:
- A comprehensive revision of client-level position limits in agri commodity derivatives; and
- A complete relook at the penalty architecture for breaches of position limits across the commodity derivatives segment.
These proposals are aimed at aligning the regulatory framework with the current scale and sophistication of India’s commodity derivatives markets, while also ensuring that compliance costs and penalties remain proportionate and do not deter genuine hedging or risk management activity.
Public comments have been invited on the draft proposals up to June 02, 2026.
Scope and objective of SEBI’s consultation
SEBI’s consultation paper has two central objectives:
- Review of position limits for clients in agricultural commodity derivatives – particularly the way commodities are categorised (Broad, Narrow, Sensitive) and how numerical position limits are computed.
- Review of penalty provisions for violation / breach of position limits for the commodity derivatives segment – including introduction of an upper cap on monetary penalties and new mechanisms for dealing with repeated breaches.
These reforms build on the existing framework contained in the SEBI Master Circular SEBI/HO/MRD/MRD-PoD-1/P/CIR/2023/136 for the Commodity Derivatives Segment dated Aug 04, 2023 and respond to multiple industry representations, Working Group recommendations and inputs from the Commodity Derivatives Advisory Committee (CDAC).
Background: Why position limits matter in commodity derivatives
Purpose of position limits
Position limits are regulatory ceilings on the number of derivative contracts an assessee (through a client account, member, or institutional participant) can hold in a particular commodity at any time. As per the Master Circular, these limits are intended to:
- Curb excessive speculation;
- Prevent undue concentration of positions with a few market participants; and
- Contain systemic risk arising from highly concentrated exposures, which can amplify volatility and impact market integrity.
Existing classification of agricultural commodities
Under Para 3.5.2 of Chapter 3 of the Master Circular, agricultural commodities are grouped into three buckets each year, using rolling averages of five-year production and import data along with qualitative considerations:
Sensitive Commodity
Classified as sensitive if it:- Is subject to frequent Government or external interventions (such as stock limits, export/import controls, or other trade restrictions); or
- Has experienced frequent price manipulation episodes in the derivatives market during the preceding five years.
Broad Commodity
Today, a commodity is tagged as “Broad” if:- It is not a Sensitive Commodity; and
- Its average deliverable supply over the last five years is at least 10 lakh Metric Ton (MT) and its monetary value is at least INR 5,000 Crore.
Narrow Commodity
Any agricultural commodity that is neither Sensitive nor Broad is placed in the Narrow category.
Current method of computing client-level position limits
Client-level open position limits for agricultural commodities are derived as a percentage of the deliverable supply for that commodity in a given year. Under the present framework, the limits are:
- Broad commodities –
1% of the deliverable supply - Narrow commodities –
0.5% of the deliverable supply - Sensitive commodities –
0.25% of the deliverable supply
The calculated numbers are rounded down to a convenient lower order of magnitude (i.e., appropriate number of zeroes).