Sebi rolls out daily price limits framework for commodity futures contracts

Sebi came out with a new framework for daily price limit for commodity futures contracts in a bid to resolve the difference in closing price at domestic exchange and global bourse

Capital markets regulator Sebi on Tuesday came out with a new framework for daily price limit for commodity futures contracts in a bid to resolve the difference in closing price at domestic exchange and global bourse.

The Daily Price Limits (DPLs) define the maximum range within which the price of a commodity futures contract can move in one trading session. Such limits protect investors from sudden and extreme price movements and provide a cooling-off period to re-assess the information and fundamentals impacting the price of the commodity futures contract.

The Indian bourses have informed that closing price on domestic exchange differs from closing price on international exchanges, after necessary currency conversion, because of a difference in methodology of calculation of closing price, the Securities and Exchange Board of India (Sebi) said in a circular.

Due to such differences in closing price, the aggregate DPL range on domestic exchange may lag behind (either upwards or downwards) the prices on international exchange in the next trading session.

To resolve the issue, Sebi said that in case the price movement in the international markets is more than the aggregate DPL, or if international price is beyond aggregate DPL range (after appropriate currency conversion) when compared with closing price on previous day on domestic exchange, the same maybe further relaxed in stages of 3 per cent by the exchange with cooling-off period of 15 minutes.

For such instances, the domestic stock exchanges will have to give appropriate notice to the market along with all the relevant details and justification for the same.

"Only in the event of exceptional circumstances, where there is extreme price movement, beyond the initial slab of the DPL, in the international markets, during trading hours or after the closure of trading on domestic exchanges, the stock exchanges can relax the DPL directly by the required level, by giving appropriate notice to the market," Sebi said.

The regulator has asked domestic stock exchanges to inform Sebi of all such instances of relaxation of DPL in the monthly development report.

The new framework will come into force with immediate effect, the regulator said.