Sebi Is Redrawing The Farm Derivatives Rulebook To Boost Liquidity Without Losing Grip

The regulator says the 2017 limits may no longer reflect today’s market structure, participation levels or product mix. Its new proposal is designed to encourage genuine hedging and deepen commodity market participation, while still guarding against excessive speculation and concentration risk.

What Sebi Wants To Change

Under the proposal, client-level position limits would rise from 1% to 2% of deliverable supply for broad commodities, from 0.5% to 1% for narrow commodities, and from 0.25% to 0.5% for sensitive commodities. Sebi also wants some commodities to move into the broad category if they meet either the quantity threshold of 10 lakh metric tonnes or the value threshold of Rs 5,000 crore.

Key Highlights

• Sebi has proposed doubling client-level position limits across agri commodity categories.
• Broad commodities would move from 1% to 2% of deliverable supply.
• Narrow commodities would rise from 0.5% to 1%, and sensitive ones from 0.25% to 0.5%.
• The regulator wants to relax the definition of “broad” commodities.
• Penalties for breaches above 2% would be capped at Rs 2 lakh.

Why The Change Matters

The move matters because position limits affect liquidity, hedging flexibility and how much institutional participation commodity markets can absorb. Industry participants have long argued that overly tight caps can discourage formal hedging, while Sebi is trying to strike a balance between market depth and avoiding runaway speculation.

Penalty And Compliance Reset

Sebi’s consultation paper also proposes a tighter penalty structure for repeated violations, including square-off mode for habitual offenders. That suggests the regulator is not simply loosening the rules, but redesigning them to be more practical, data-linked and enforcement-friendly for India’s evolving agri-derivatives ecosystem.

Sources: Economic Times, Business Standard, Reuters, The Hindu BusinessLine