SEBI Revises Commodity Derivatives Position Limits and Penalties With Immediate Effect
The Securities and Exchange Board of India has revised the client-level position-limit framework and penalty structure for the commodity derivatives segment, with the changes taking effect immediately from September 9, 2026. The regulator issued Circular No. HO/47/16/13(5)2026-MRD-POD1/I/20735/2026 after reviewing stakeholder representations, recommendations of its working group on agricultural commodity derivatives and the Commodity Derivatives Advisory Committee, as well as public comments.
What SEBI has changed
The circular modifies the monitoring and position-limit provisions contained in Chapter 3 of SEBI's August 4, 2023 Master Circular for the Commodity Derivatives Segment. The changes affect both the monetary consequences of breaching client-level open-interest limits and the numerical limits that apply to agricultural commodities classified as Broad, Narrow or Sensitive.
For a client-level violation exceeding 2% of the prescribed limit, the daily monetary penalty is now the amount produced by the prescribed formula — limit exceeded multiplied by the closing price, the number of days of violation and 2% — or ₹2 lakh, whichever is lower. Where the violation is up to 2% of the prescribed limit, the same formula applies but the monetary cap is ₹10,000. For options, the calculation is based on the near-calendar-month underlying futures closing price.
The member must bring the position back within the prescribed limit by the next trading day after the violation. If the excess continues, the exchange may square off the excess position without further notice to the member. SEBI has also retained escalation for repeated breaches: where a breach above 2% is observed more than three times for a trading member in a calendar month in the same commodity, the exchange may put the member in square-off mode for one day. If breaches covered by either penalty band occur more than three times in a calendar month, an additional penalty equal to the open-interest violation penalty is also to be imposed.
Revised client-level position limits
SEBI has linked the overall client-level open-position limit for each commodity to deliverable supply and its regulatory category. The numerical limits are now 2% of deliverable supply for Broad commodities, 1% for Narrow commodities and 0.5% for Sensitive commodities. The resulting number is to be rounded downward to an appropriate number of zeroes.
The regulator has also revised the definition used for a Broad agricultural commodity. A commodity must not be classified as Sensitive and must satisfy the prescribed deliverable-supply test, including average deliverable supply over the preceding five years of at least 10 lakh metric tonnes in quantitative terms or at least ₹5,000 crore in monetary terms. This change can move some commodities from the Narrow category into the Broad category.
SEBI has provided a transition safeguard for commodities that shift from Narrow to Broad because of the revised definition. Such commodities will initially continue with a 1% position limit for one year. After that period, the exchange may increase the limit to 2% after review and satisfaction that the higher Broad-category limit is appropriate.
Why the circular matters for brokers and compliance teams
The immediate effective date means commodity exchanges, trading members and compliance functions have little transition time. Exchanges have been directed to take the necessary steps and put systems in place to implement the revised framework. Broker risk engines and surveillance processes therefore need to reflect both the new category-based limits and the revised penalty caps without delay.
For finance and compliance professionals advising commodity-market participants, the practical focus should be on mapping every traded commodity to its current category, checking whether any category has changed under the revised Broad-commodity definition, and validating client-level open-interest controls against the new percentages. The one-year transitional limit for newly Broad commodities is particularly important because applying the 2% Broad limit immediately would be inconsistent with the circular.
The revised penalty caps also make the cost of smaller and larger breaches more predictable, but the framework still contains operational consequences that can be more disruptive than the monetary amount. Repeated violations can lead to square-off mode and an additional penalty, while continuing excess positions may be squared off by the exchange.
Commodity brokers and their compliance teams should treat September 9, 2026 as the operative date, update position-limit matrices and breach calculations, and test whether internal alerts distinguish the up-to-2% and above-2% penalty bands. Firms should also document commodity reclassification decisions and the one-year transition treatment so that client limits are not increased prematurely.
Official source: View the official source document
Key takeaway
SEBI has revised client-level position limits and penalty caps for commodity derivatives, including new 2%, 1% and 0.5% deliverable-supply limits for Broad, Narrow and Sensitive commodities.
