SEBI has updated rules for commodity derivatives, capping monetary penalties for open interest violations at Rs 2 lakh. The new framework doubles position limits for various commodity categories and relaxes criteria for 'Broad Commodity' status to improve market liquidity. These changes replace 2017 regulations, with stricter enforcement measures for repeat offenders.
The Securities and Exchange Board of India (SEBI) has introduced a revised framework for commodity derivatives on September 9, 2026, aimed at modernizing market oversight. The new guidelines overhaul how position limits—the maximum amount of a commodity a participant can hold—are managed and introduces a clear cap on monetary penalties for breaches.
Under the updated rules, the regulator has established a maximum penalty of Rs 2 lakh for client-level open interest violations that exceed 2 percent of the prescribed limit. For smaller infractions where the breach is within 2 percent of the limit, the penalty is capped at Rs 10,000. These provisions replace the existing penalty framework that has been in place since 2017, providing a more structured approach to market discipline.
SEBI has also significantly increased position limits across different segments. Broad commodities now have a limit of 2 percent, while narrow and sensitive commodities have limits of 1 percent and 0.5 percent, respectively. This represents a doubling of the previous threshold levels, a move intended to support better market depth and liquidity. Additionally, the criteria for classifying an item as a 'Broad Commodity' have been relaxed. An agricultural product can now qualify if it meets one of two conditions: either a five-year average deliverable supply of 10 lakh metric tonnes or a value of Rs 5,000 crore, rather than requiring both conditions to be met.
While the reforms aim to encourage participation, they also introduce stricter enforcement mechanisms to maintain market order. Trading members are required to correct any excess positions by the next trading day. If a member repeatedly violates these rules—defined as more than three breaches exceeding 2 percent within a single calendar month—exchanges are now mandated to force a square-off of their positions for the full day. Furthermore, repeat violations across any threshold will trigger an additional penalty equal to the initial fine, with these proceeds directed toward the Investor Protection Fund.
Investors and market participants should note that while higher position limits may allow for more active trading, they could also lead to increased market volatility if larger exposures are not managed carefully. Any commodity transitioning into the 'Broad' category will be subject to a one-year probationary period, during which it will retain its existing 1 percent limit before the exchange considers increasing it. Market participants will need to update their internal compliance systems to align with these new limits and penalty structures to avoid unnecessary enforcement actions.