SEBI Proposes Doubling Position Limits for Agricultural Commodities

SEBI is proposing to double client-level position limits for agricultural commodity derivatives to boost liquidity and improve market depth. The revised limits aim to curb excessive speculation and systemic risks. Changes also include a new penalty framework and updated criteria for classifying broad commodities.

The Securities and Exchange Board of India (SEBI) has proposed significant changes in the agricultural commodities derivatives market. On Tuesday, SEBI suggested doubling client-level position limits, a move poised to enhance liquidity, market depth, and price discovery. The existing limits, introduced in 2017 to suit that period's market conditions, are slated for upward revision due to considerable market evolution.

The proposals involve increasing the overall client-level open position limits for broad agricultural commodities to 2% of deliverable supply from the current 1%. For narrow commodities, the limit would rise to 1% from 0.5%, and sensitive commodities would see a boost to 0.5% from 0.25%. This dramatic adjustment aims to prevent excessive speculation and reduce systemic risks originating from concentrated market positions.

Furthermore, SEBI has recommended easing the criteria for classifying a commodity as 'broad' by allowing it to meet either of two criteria—average deliverable supply over the past five years of at least 10 lakh metric tonnes or a minimum value of Rs 5,000 crore. In terms of penalties, the regulator has proposed capping them to develop a more context-sensitive regulatory framework. Industry stakeholders are invited to submit feedback until June 2.