SEBI Expands Position Limit Base For Farm Commodity Futures

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Sebi has recently expanded the position limit for farm commodity futures across all the levels of the client, member and the exchange. This is done by the board in order to expand the base for traders and investors in the agricultural commodity nifty futures.

The market regulator SEBI, had issued a circular in the last week of the month of July’17 saying that the stakeholders have given a feedback that the present quantitative value of client segment position limits for agri commodity derivatives is not sufficient and hence is not in agreement with the deliverable supply of the agri commodities.

After an intense discussion with the stakeholders based on Commodity Derivatives Advisory Committee, the exchange board has come up with the division of the client-level position limit for agri commodities, the legal news confirms. The three categories suggested are sensitive, broad and narrow. Since the sensitive commodities, which have had frequent instances of price manipulation in the past five years, would need regular government intervention in terms of stock limits, import and export restrictions, and other trade barriers, therefore the clients under sensitive commodities will enjoy a position limit of 0.25% of deliverable supply. In case of the broad commodities, which are not characterized as sensitive but have an average deliverable supply for the last five years as 10 Lakh metric tonnes in numerical term and Rs 5,000 Cr in value term, the clients under broad commodities will avail a position limit of 1% of deliverable supply. The last or the narrow category includes the commodities that are not part of either of the aforesaid two categories, such category will attract a client level position limit of 0.5% of the deliverable supply. The deliverable supply would include production and imports.

Sebi has directed Commodity exchange to revise the position limit and declare the details by July 31 every year after gathering data from concerned departments. After the declaration every year, the revised position limit for agri commodities will apply for all contracts starting from Sep’ 1. For this year, the exchanges like NCDEX, MCX and NMCE are expected to complete this in the time span of 20 days and make the revised position limit starting from Oct’ 1.

Coming on to the next level, the member level, the position limit in agri commodities would be 10x the numerical value of client level position limit of 15% of the market wide open interest, whichever is higher. Another segment, the exchange level position limit shall be kept at 50% of the annual estimated production and import of the commodity.

As far as clubbing of position limits is concerned, the regulator has directed Comex to jointly issue a uniform norm and declare the same in next 30 days. NCDEX has finalized position limits across chana contracts that expire in Sep’17 and beyond at 30000 tonnes for clients. For black pepper, it is 900 tonnes, liquid commodities like castor have a limit of 12000 tonnes, and guarseed at 2400 tonnes.

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