Summary of this article
Sebi caps daily penalties for breaching open position limits.
New broad commodity definition requires high physical deliverable supply.
Client position limits now link directly to physical supply.
The Securities and Exchange Board of India (Sebi) has decided to review certain provisions which govern trade in the commodity derivatives segment. In a circular dated September 9, 2026, Sebi announced that it will modify provisions relating to penal provisions for position limit violations under the definition of broad commodities and client-level numeric position limits.
Sebi's Changes To Commodity Derivatives Rules
Sebi has introduced capped monetary penalties and other operational measures for breaching open position limits. In the commodity derivatives market, an open position refers to the active contracts a trader holds for any commodity that have not yet been closed or settled.
An open position limit is the maximum number of these contracts a single individual is permitted to hold. Under the updated framework, a violation of up to two per cent of the open position limit will now attract a penalty of
Rs 10,000 per day, whereas violations exceeding two per cent will carry a maximum penalty of Rs 2,00,000 per day.
The limits seek to prevent a single entity from buying up all the contracts and controlling the supply and price of physical goods. The new penalty structure seeks to limit penalties for unintentional minor breaches while penalising major breaches or market manipulation. However, if a trading member records three repeated violations in a calendar month they cannot just pay the penalty and move on, they face additional fines and a mandatory one-day square-off restriction under which their open position is squared off by the regulator itself.
"In case, the instance at 1(a) above is observed for more than 3 times for a trading member in a calendar month, the Exchange would put the concerned member on square off mode for a period of one day, if the violation is on account of the same commodity,” Sebi said.
Redefining Broad Commodities
In commodity markets, agricultural products are grouped into three categories based on their physical availability. A broad commodity is a product with an abundant physical supply. A narrow commodity has a smaller physical supply, and a sensitive commodity is an essential or highly volatile commodity prone to manipulation. However, in its latest circular, Sebi has modified the definition of broad commodities.
An agricultural crop will now be classified as a broad commodity if its average deliverable supply over the preceding five years is at least 10 lakh metric tonnes in volume or at least Rs 5,000 crore in monetary value.
This modification seeks to put in place a data-backed standard to separate heavily produced agricultural goods from those with relatively smaller physical supplies. The new definition aims to identify which goods are actually abundant so they can be regulated with appropriate limits. The regulator established these specific thresholds to keep definitions synced with actual physical availability.
"An agricultural commodity will be classified as 'Broad Commodity' if it is not a 'Sensitive Commodity' and satisfies the following criteria: Average deliverable supply for past five years is at least 10 Lakh Metric Ton (MT) in quantitative terms or is at least Rs 5,000 Crore in monetary terms," Sebi said.
Revised Client Level Numeric Position Limits
Sebi has updated its commodity derivatives rules to calculate client level position limits as a direct percentage of the annual deliverable supply across commodity categories.
According to the circular, individual traders can now hold open positions up to two per cent of the deliverable supply in broad commodities, 1 per cent in narrow commodities, and 0.5 per cent in sensitive commodities. The adjustment sets a limit on how many contracts a single trader can own relative to the total physical market size of the commodity.
Deliverable supply is the actual physical amount of a commodity produced and available yearly. Since sensitive commodities are short in supply, their limit is set at 0.5 per cent to protect against manipulation.
Narrow commodities have a moderate limit, while broad commodities allow for a higher two per cent holding because their physical supply diffuses the risk of a single trader having a monopoly over open positions. This ensures limits dynamically adjust as agricultural yields change. The formula directly ties maximum capacity to real production volumes.
"Numerical Value of overall client level open position limits for each commodity shall be calculated from 'deliverable supply' available in a particular year, as per its category," Sebi said.
Sebi’s regulatory changes come at a time when retail investors are looking beyond investing in mutual funds and stocks and participation in the derivative markets is increasing.
According to Sebi, the original position limits were introduced in two017, and the current changes are based on feedback from market participants, the Commodity Derivatives Advisory Committee, and a working group to facilitate ease of doing business.
As more traders invest in commodities, the revised guidelines are expected to bring clarity and replace disproportionate penalties with a structured system.
