The Securities and Exchange Board of India (SEBI) on 9 September introduced revised norms governing client position limits and penalties for breaches in the commodity derivatives segment.

SEBI said the revisions followed stakeholder representations, recommendations of the Working Group reviewing regulatory norms for the Agri Commodity Derivatives Segment, and inputs from the Commodity Derivatives Advisory Committee.

Under the revised framework, penalties for client-level open-interest violations will be based on the quantum or value of the breach and imposed for each day the violation continues. For violations exceeding 2% of the prescribed limit, the penalty will be calculated by multiplying the excess position by the closing price and the number of days of continued violation, and then by 2%, subject to a maximum of Rs. 2 lakh. For violations up to 2%, the maximum penalty will be Rs. 10,000.

Members must bring the position within the prescribed limit by the next trading day. If they fail to do so, the exchange may square off the excess position without further notice.

If a trading member breaches the prescribed limit by more than 2% on more than three occasions in a calendar month, the exchange may place the member in square-off mode for one day. An additional penalty may also be imposed for repeated violations, except where the breach is solely due to clubbing of positions.

SEBI has also revised the definition of 'Broad Commodity'. An agricultural commodity will qualify as a Broad Commodity if it is not a Sensitive Commodity and has an average deliverable supply over the preceding five years of at least 10 lakh metric tonnes or Rs. 5,000 crore in monetary terms.

The revised client-level numerical position limits will be 2% of deliverable supply for Broad Commodities, 1% for Narrow Commodities and 0.5% for Sensitive Commodities.

The circular takes immediate effect.

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