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Sebi expands position limit base for farm commodity futures

Puts agri commodities in three categories, asks comexes to declare position limits in 30 days

Dilip Kumar Jha  |  Mumbai 


Expanding the horizon for traders in futures, market has expanded position limits across all spectrums at the client, member and exchange levels.

In a circular dated July 25, said stakeholders' feedback shows the current numerical value of overall client level position limits for agricultural commodity derivatives is inadequate and not in consonance with the deliverable supply of commodities. After due consultation with various stakeholders on the basis of CDAC (Commodity Derivatives Advisory Committee), the has divided the client-level for agri commodities in three broad category -- sensitive, broad and narrow.

Defining sensitive commodities, the said these are prone to frequent government / external intervention in the form of stock limits, import/export restrictions or any other trade-related barriers. Such commodities have had frequent cases of price manipulation during the past five years of derivatives trading. Hence, clients under this category are allowed to have a of 0.25 per cent of deliverable supply (an average of last five years' average output and import).

The defined "broad commodities" as those which are not sensitive in nature, but whose average deliverable supply for the last five years stood at one million tonne in quantitative term and at least Rs 5,000 crore in monetary term. Commodities falling under this category would attract a client level of one per cent of the deliverable supply.

The third type, the "narrow category" consists of commodities that do not fall in other two categories. Such commodities would entail with a client level of 0.5 per cent of the deliverable supply.

"This is a fair move by Sebi," said Shiv Kumar Goel, President, Commodity Participants Association of India (CPAI), the body representing all participants in commodity futures value chain.

Earlier, followed the move of the Forward Commission (FMC), the erstwhile of commodity futures that was merged with it in 2015, and fixed position limits on numerical value depending upon the size of the individual commodity and traders' interest in it.

The directed to jointly classify agricultural commodities into these three broad categories. The regulator, however, allowed re-classification from 'narrow' to 'broad', provided the concerned commodity's average deliverable supply and monetary value thereof exceeds 5 per cent.

The has directed to revise the and notify such details by July 31 every year by incorporating sources of data procured. For agricultural commodities, asked to avail data from concerned ministries. For every year, the revised data will become applicable for all running contracts with effect from September 1. For the current year, however, exchanges are advised to complete the exercise within 20 days and make the revised applicable effective from October 1.

For member level, however, the in agricultural commodities across all the contracts would be 10 times the numerical value of client level of 15 per cent of the market wide open interest, whichever is higher. Also exchange wise shall be capped at 50 per cent of the annual estimated production and import of the commodity. There will be no change in norms with regard to near month position limits, computation of open positions, monitoring of position limits or any other norms prescribed by earlier.

With regard to clubbing of position limits, has directed to jointly formulate a uniform guideline and disclose the same to the market within 30 days.

First Published: Wed, July 26 2017. 01:17 IST