The Securities and Exchange Board of India (SEBI) has revised the framework for position limits in the commodity derivatives segment, introducing changes to client-level limits for agricultural commodities and modifying the penalty structure for position-limit violations.
The changes were announced through SEBI Circular No. HO/47/16/13(5)2026-MRD-POD1/I/20735/2026 dated September 9, 2026. The circular states that the revised provisions are aimed, among other things, at facilitating ease of doing business while responding to stakeholder representations and recommendations concerning agricultural commodity derivatives.
The revised framework is effective immediately from September 9, 2026.
What Are Position Limits in Commodity Derivatives?
A position limit is the maximum open position that a client or market participant can hold in a particular commodity derivative.
Position limits are important because large concentrated positions can affect market liquidity, price discovery and the orderly functioning of the derivatives market. By setting limits, the regulator and exchanges can monitor the concentration of open interest and manage excessive exposures.
SEBI’s latest circular primarily changes the framework for agricultural commodity derivatives, while also revising the penalty mechanism applicable to position-limit violations.
Why Has SEBI Revised the Position Limit Framework?
According to SEBI, the existing commodity position-limit framework was prescribed under Chapter 3 of the SEBI Master Circular for Commodity Derivatives dated August 4, 2023. The current position limits had been introduced in 2017 and were aligned with market conditions prevailing at that time.
SEBI received representations seeking a review of position limits for agricultural commodity derivatives and also representations seeking a cap on penalties for position-limit violations.
The revised provisions take into account stakeholder representations, recommendations of the Working Group on the regulatory framework for agricultural commodity derivatives, recommendations of the Commodity Derivatives Advisory Committee (CDAC), and public comments.
Major Changes in SEBI’s 2026 Commodity Derivatives Circular
The September 2026 circular makes three important changes:
- A revised penalty structure for position-limit violations
- A new definition of “Broad Commodity”
- New client-level numerical position limits based on deliverable supply
Let’s understand each change.
1. Revised Penalty for Position-Limit Violations
SEBI has revised the monetary penalty applicable to members for client-level open-interest violations.
The penalty is linked to the size of the violation, the closing price and the number of days for which the violation continues.
| Extent of Violation | Revised Penalty |
|---|---|
| More than 2% of prescribed limit | Limit exceeded × closing price × number of violation days × 2%, or ₹2 lakh, whichever is lower |
| Up to 2% of prescribed limit | Limit exceeded × closing price × number of violation days × 2%, or ₹10,000, whichever is lower |
For the purpose of calculating the option-based penalty, SEBI specifies that the calculation is based on the near-calendar-month underlying futures closing price.
What Happens if the Position Is Not Reduced?
The concerned member must ensure that the position is reduced and brought within the prescribed limit by the next trading day after the violation.
If the violation continues, the exchange may square off the excess position without providing further notice to the member. SEBI also states that the exchange will not be responsible for consequences arising from such square-off.
This makes timely position monitoring particularly important for brokers, trading members and clients with sizeable commodity derivative exposures.
Additional Consequences for Repeated Violations
The circular also provides additional consequences for repeated violations.
If a violation falling under the higher-violation category occurs more than three times in a calendar month for a trading member and relates to the same commodity, the exchange can place the concerned member in square-off mode for one day.
If the specified violations occur more than three times during a calendar month, an additional penalty equivalent to the penalty already charged for the open-interest violation can also be imposed.
However, SEBI provides an exemption from this additional penalty where the violation arises exclusively because of clubbing of positions.
Penalties collected under the framework will be credited to the Investor Protection Fund of the exchange.
2. New Definition of “Broad Commodity”
One of the important changes concerns the classification of agricultural commodities.
Under the revised framework, an agricultural commodity will be classified as a Broad Commodity if it is not classified as a Sensitive Commodity and its average deliverable supply over the previous five years meets at least one of these thresholds:
| Criterion | Requirement |
|---|---|
| Average deliverable supply – quantity | At least 10 lakh MT |
| Average deliverable supply – monetary value | At least ₹5,000 crore |
Therefore, the revised definition uses either the quantitative or monetary threshold, provided the commodity is not a Sensitive Commodity.
This change can affect the position-limit calculation for agricultural commodities that move from the Narrow category into the Broad category.
3. New Client-Level Position Limit Formula
SEBI has revised the method for determining the overall client-level open-position limit for each agricultural commodity.
The limit will now be calculated using the deliverable supply available in the particular year, based on the commodity’s category.
| Commodity Category | Client-Level Position Limit |
|---|---|
| Broad Commodity | 2% of deliverable supply |
| Narrow Commodity | 1% of deliverable supply |
| Sensitive Commodity | 0.5% of deliverable supply |
The calculated numbers will be rounded down to an appropriate number of zeroes, as specified by SEBI.
What Does This Mean in Simple Terms?
Suppose a commodity is classified as Broad and has annual deliverable supply of 10 lakh MT.
Under the new formula:
10,00,000 MT × 2% = 20,000 MT
Therefore, the numerical client-level position limit derived from this formula would be 20,000 MT, subject to the applicable rounding requirement and other regulatory provisions.
For a Narrow commodity with the same deliverable supply:
10,00,000 MT × 1% = 10,000 MT
For a Sensitive commodity:
10,00,000 MT × 0.5% = 5,000 MT
This illustrates how the commodity’s classification directly affects the permitted client-level position.
One-Year Transition for Commodities Moving to Broad Category
SEBI has also introduced a transition provision.
If an agricultural commodity moves from the Narrow category to the Broad category because of the revised definition, it will initially continue with a 1% position limit for one year.
After that period, the exchange may increase the limit to 2%, following a review and after satisfying itself that the commodity meets the applicable requirements.
This creates a gradual transition instead of an immediate increase in the position limit.
What Does the 2026 Circular Mean for Market Participants?
The changes are relevant to several participants in India’s commodity derivatives market.
For Clients
Clients holding agricultural commodity derivative positions need to monitor their positions against the revised commodity-level limits.
The classification of a commodity as Broad, Narrow or Sensitive can now have a direct effect on the applicable numerical limit.
For Trading Members and Brokers
Trading members will need effective systems for monitoring client and clubbed positions.
The circular places responsibility on members to ensure that excess positions are reduced by the next trading day. Continued violations can result in exchange-led square-off and additional penalties.
For Exchanges
Commodity exchanges are required to implement the revised framework, make necessary changes to their systems and amend relevant bye-laws, rules and regulations where required.
They are also required to communicate the revised provisions to market participants, including investors, and disseminate the information on their websites.
Key Takeaways from SEBI’s September 2026 Circular
| Key Point | 2026 Change |
|---|---|
| Circular date | September 9, 2026 |
| Effective date | Immediate |
| Broad Commodity | At least 10 lakh MT average five-year deliverable supply or ₹5,000 crore |
| Broad category limit | 2% of annual deliverable supply |
| Narrow category limit | 1% of annual deliverable supply |
| Sensitive category limit | 0.5% of annual deliverable supply |
| Narrow-to-Broad transition | 1% for the initial one-year period |
| Position violation | Revised penalty structure |
| Continuing violation | Excess position may be squared off |
| Repeated violations | Additional consequences may apply |
| Penalty destination | Exchange Investor Protection Fund |
Why This Circular Matters
SEBI’s September 2026 decision updates a position-limit framework that had been based on market conditions from an earlier period. The revised approach links agricultural commodity client limits more directly to deliverable supply and commodity classification.
At the same time, the revised penalty mechanism establishes clearer monetary limits for violations and reinforces the requirement to bring excess positions within the prescribed limits promptly.
For investors and traders, the practical takeaway is simple: position limits should be checked at the commodity level, especially when holding significant agricultural derivative positions. Brokers and trading members, meanwhile, need to ensure that their monitoring and risk-management systems reflect the revised requirements.
The circular is effective immediately, so market participants should refer to the official SEBI notification and the applicable exchange-level communications for commodity-specific implementation details.
Disclaimer
This article is for educational and informational purposes only and should not be considered investment, trading or legal advice. Readers should refer to the official SEBI circular and relevant exchange notifications for the applicable regulatory requirements before taking any action.
Official source: SEBI Circular – Review of Position Limits for Clients and Penalty Provisions for Commodity Derivatives Segment
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