Sebi reclassifies commodities, revises position limits for derivatives trade

The Securities and Exchange Board of India (SEBI) has created three categories for agricultural commodities and has prescribed position limits that investors can hold for each category of commodities, in a bid to reduce price volatility.

Sebi has classified commodities as `Sensitive', `Broad' and `Narrow'', based on the frequency of government interventions and other extraneous factors affecting markets and the overall availability.

''In any given year, based on the average of production data and import data of past five years on a rolling basis and keeping in view of various  extraneous factors that affect trading in derivatives, the  agricultural  commodities  shall  be  classified  into  three categories, viz, `sensitive', `Broad' and `Narrow','' the regulator said.

The overall client level position limit for sensitive commodities will be 0.25 per cent of deliverable supply, while it will be 0.5 per cent for narrow commodities and 1 per cent for broad commodities, Sebi said.

An agricultural commodity may be classified as `Sensitive' if it is prone to frequent government/external  interventions. These interventions may be in the nature of stock limits, import/export restrictions or any other trade related barriers; or has observed frequent instances of price manipulation in past five years of derivatives trading, Sebi said.

An agricultural commodity shall be classified as 'Broad Commodity' if it is not  a 'Sensitive Commodity' and satisfies the criteria, including average deliverable supply at least 10 lakh tones for the past five year (in quantity terms) and at least Rs5,000 crore in monetary term.

An agricultural commodity which is not falling in either the 'Sensitive' or 'Broad' category may be classified as 'Narrow Commodity'.

The deliverable supply for an agricultural commodity would be 'production and imports'

Sebi has asked all the national commodity derivatives exchanges to jointly classify agricultural commodities on an annual basis as per the prescribed criteria.

Whenever an agricultural commodity of 'Narrow' category is required to be re-categorized to 'Broad' in subsequent years, such re-categorisation may be possible only if both, average deliverable supply of such commodity for the past five years and monetary value thereof exceeds by more than 5 per cent.

For determination of 'deliverable supply' of various agricultural commodities for  each year, the national commodity derivatives exchanges may take into account the latest production figures of such commodities  as annually declared by relevant government sources or from the latest 'third advance estimates' of agricultural commodities published by the ministry of agriculture or any other yearly estimates/assessments of  production and imports made by any governmental agencies such as ministry of agriculture, ministry of textiles, ministry of commerce, different statutory boards/associations etc concerned with different agricultural commodities.

The national commodity derivatives exchanges should indicate the sources from which the production and import / export data have been obtained for the purpose of determining 'deliverable supply' of different agricultural commodities.

Every year, for each agricultural commodity that is being traded in the    derivatives market, all national commodity derivatives exchanges should jointly complete the exercise of determining 'deliverable supply, categorisation/re-categorisation of commodities and computation of numerical value of position limits.

Numerical values of position limits for any agricultural commodity may be revised only if the computation results in a revision in the value by at least 5 per cent compared to the previous year's limits. 

Sebi has asked exchanges to make prior intimation to Sebi and notify such details to the market through their respective websites sufficiently in advance and latest by 31 July (unless extended by Sebi under exceptional circumstances) of  every  year and  revised limits shall become applicable for all running contracts with effect from 1 September of every year.

For the current year, however, Sebi has asked all the national commodity derivative exchanges to complete this exercise at earliest and notify the same to the market within 20 days of the circular under prior intimation to Sebi and the revised limits shall become applicable for all running contracts with effect from 1 October 201

Sebi said it may exercise due discretion in modifying the position limits at any time during the year in the interest of trade and the public.

The overall member level position limit for an agricultural commodity across all the contracts has been fixed at 10 times the numerical value of client level position limit or 15 per cent of the market-wide open interest, whichever is higher.

Exchange-wide  gross position limit, which was earlier capped at 50 per cent of the annual estimated production and imports of the commodity, has now been substituted with 50 per cent of the 'deliverable supply' determined for the relevant year, which should also be jointly notified by the exchanges along with client level numerical limits.

For clubbing of open positions all national commodity derivative exchanges have been asked to jointly formulate uniform guidelines and disclose the same to the market within 30 days.

There  is  no  change  in  norms  with  regard  to near  month  position  limits, computation of open positions, monitoring of position limits or any other norm earlier prescribed by Sebi for position limits.