SEBI Launches Consultation Paper To Review And Rationalise Position Limits And Penalty Provisions

Nikunj Parikh May 12, 2026 310 Views

SEBI has released a consultation paper proposing a major overhaul of position limits for clients in agricultural commodity derivatives and a recalibration of penalties for breaches in the commodity derivatives segment, aiming to deepen liquidity while preserving robust market integrity and risk management.

SEBI’s latest consultation paper seeks stakeholder feedback on doubling client-level position limits in agri commodity derivatives and revising how penalties are capped and applied for position limit violations. The move is framed as part of a broader Ease of Doing Business push in India’s commodity derivatives markets.

Regulatory Context And Rationale

Position limits currently cap how many contracts a client, member or institution can hold in a specific commodity, to curb excessive speculation and concentration risk. These norms, last overhauled in 2017, are now viewed as misaligned with a significantly evolved market in terms of participants and product offerings.

Revised Position Limits For Agri Commodities

SEBI’s Working Group and CDAC have recommended doubling client-level limits across categories: Broad commodities from 1% to 2%, Narrow from 0.5% to 1% and Sensitive from 0.25% to 0.5% of deliverable supply, with downward rounding. The definition of Broad commodities is also relaxed by allowing the quantitative or monetary threshold to be met, instead of both.

Penalty Framework RecalibratedThe paper proposes capping higher-range penalties at Rs 2,00,000 for violations above 2% of prescribed limits, while retaining the formula linked to value and duration of violation. Repeated breaches will trigger square-off-only mode and additional penalties, with all proceeds credited to the Investor Protection Fund.

Key Highlights

SEBI consults on doubling client-level position limits in agri commodity derivatives
Broader, narrower and sensitive commodity bands to be redefined for flexibility and depth
Penalty on breaches to be capped, with Rs 2,00,000 ceiling for major violations
Repeat offenders may face square-off-only mode and additional monetary sanctions
Comments invited online until June 2, 2026 through SEBI’s public comments portal

Sources: SEBI consultation paper on review of position limits and penalty provisions for commodity derivatives segment

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