A trading member breaching its position limit in a commodity contract will now face a penalty capped at a fixed rupee amount rather than an open-ended calculation — and an agri commodity's classification as "Broad," "Narrow" or "Sensitive" will decide how tight that limit is in the first place. SEBI's circular dated September 9, 2026 rewrites both the penalty structure and the classification framework that has largely stood since 2017.
Quick answer
SEBI, through Circular No. HO/47/16/13(5)2026-MRD-POD1/I/20735/2026 dated September 9, 2026, has revised three provisions of Chapter 3 of its Master Circular for the Commodity Derivatives segment (dated August 4, 2023): the penalty structure for position limit violations, the definition of "Broad Commodity" for agricultural commodities, and the client-level position limit percentages by commodity category. Position limits are now set at 2% of deliverable supply for Broad Commodities, 1% for Narrow Commodities and 0.5% for Sensitive Commodities. Violation penalties are capped at ₹2,00,000 per day for breaches above 2% of the limit and ₹10,000 per day for breaches up to 2%. The changes take effect immediately.
Why this matters
Position limits in the commodity derivatives segment have largely stood since 2017. SEBI notes it had been receiving representations on two fronts: a review of the position limit norms applicable to agri commodity derivatives, and a request to cap the open-ended penalty that applied for position limit violations. This circular responds to both, drawing on recommendations from a Working Group on the review of regulatory norms for the Agri Commodity Derivatives Segment, input from the CDAC (understood to refer to SEBI's Commodity Derivatives Advisory Committee, though the circular itself only uses the abbreviation), and public comments — with Ease of Doing Business cited as the underlying objective.
A "position limit" caps how large a trading position a client (or clubbed group of clients) can hold in a commodity contract, to prevent excessive concentration that could distort prices. "Deliverable supply" is the quantity of a commodity actually available for physical delivery in a given year, and it's the base figure against which position limits are calculated as a percentage. Commodities are grouped into three bands — Broad, Narrow and Sensitive — with looser limits for Broad Commodities (which have deep, liquid physical supply) and tighter limits for Sensitive Commodities.
Who is affected?
Must implement the revised framework, amend bye-laws, and notify participants — directly addressed by the circular.
Subject to the revised penalty formula, the mandatory next-day correction rule, and exchange square-off powers.
Position limits available to them may change if their commodity's classification shifts under the new Broad Commodity definition.
Entitled to be notified of the revised norms via disclosures the exchanges are required to publish.
Detailed analysis
1. The revised penalty for position limit violations
The penal provisions under Annexure J (Para 3.4.3, "Monitoring of Position Limits") now prescribe a monetary penalty on the member for open-interest violations at the client level — whether on the member's own account or an aggregated (clubbed) client account — charged for every day the violation continues:
Limit exceeded × closing price × number of days of violation × 2% (0.02), or ₹2,00,000, whichever is lower.
Limit exceeded × closing price × number of days of violation × 2% (0.02), or ₹10,000, whichever is lower.
A member exceeds its client-level limit by 500 MT for 3 days in a contract with a closing price of ₹20,000/MT, and the violation exceeds 2% of the prescribed limit. The formula gives 500 × ₹20,000 × 3 × 0.02 = ₹6,00,000. Since the circular caps this category of violation at ₹2,00,000, the penalty payable would be ₹2,00,000 — the lower of the two figures.
The member must bring its position within the prescribed limit by the next trading day. If it does not, the exchange will square off the excess position on the member's behalf, in that client code, without further notice — and the exchange bears no responsibility for the consequences of that square-off.
Repeat violations carry escalating consequences. If an over-2% violation recurs more than three times in a calendar month for the same commodity, the exchange places the member in square-off mode for one day. If any combination of violations (whether over or up to 2%) recurs more than three times in a month, the exchange imposes an additional penalty equal to the penalty already charged — except where the violation arises exclusively from the clubbing of positions, in which case this additional penalty does not apply. SEBI has also reserved the right to consider action against a member where it observes repeated violations of this nature. All penalties collected are credited to the Investor Protection Fund of the exchange.
2. The revised definition of "Broad Commodity"
Under Para 3.5.2(i)(b), an agricultural commodity now qualifies as a Broad Commodity if it is not classified as a "Sensitive Commodity" and meets either of the following two thresholds, based on average deliverable supply over the past five years:
Either threshold — quantity or value — is sufficient; the commodity does not need to satisfy both.
3. The revised client-level position limits by category
The resulting figure is rounded downward to an appropriate number of zeroes.
A commodity that moves from Narrow to Broad because of the revised definition does not immediately get the 2% limit. It retains the 1% Narrow-category limit for one year. After that year, the exchange — following its own review and upon its satisfaction — may raise the limit to 2%. The circular does not prescribe specific criteria for that satisfaction test, leaving the assessment to the exchange.
The circular comes into force with immediate effect from September 9, 2026. The only built-in delay is the one-year retention period for commodities newly classified as Broad Commodities, which continue at the 1% Narrow-category limit before the exchange considers raising it.
Practical implications
Exchanges will need to rebuild their position-limit monitoring and penalty-computation systems around the new formula, including the daily per-client, per-commodity calculation, the ₹2,00,000 and ₹10,000 caps, and the square-off logic for uncorrected violations. Trading members should review their internal risk controls, since the penalty is charged per day of violation and can escalate quickly if a breach is not corrected by the next trading day. Members handling agri commodity derivatives should specifically check whether any commodity they trade shifts from Narrow to Broad under the revised definition, since that shift changes the applicable position limit — subject to the one-year transition. Because the circular does not restate the earlier penalty amounts, position limit percentages or Broad Commodity threshold, compliance teams updating internal manuals should cross-check the August 4, 2023 Master Circular to confirm exactly what has changed for their specific commodities.
Compliance checklist
Frequently asked questions
What does this SEBI circular change for the commodity derivatives segment?
It revises the penalty structure for position limit violations, updates the definition of "Broad Commodity" for agri commodities, and revises how client-level position limits are calculated by commodity category.
What is the new definition of "Broad Commodity"?
An agri commodity qualifies as a Broad Commodity if it is not a Sensitive Commodity and its average deliverable supply over the past five years is at least 10 Lakh Metric Tonnes, or at least ₹5,000 crore in value.
What are the new client-level position limits by category?
2% of deliverable supply for Broad Commodities, 1% for Narrow Commodities, and 0.5% for Sensitive Commodities, rounded downward to an appropriate number of zeroes.
What happens to a commodity that moves from Narrow to Broad under the new definition?
It initially retains the 1% Narrow-category position limit for one year. After that, the exchange may raise it to the 2% Broad-category limit, following its own review and satisfaction.
How is the penalty for a position limit violation calculated?
For violations exceeding 2% of the prescribed limit: limit exceeded × closing price × number of days of violation × 2%, or ₹2,00,000, whichever is lower. For violations up to 2%, the same formula applies with a ₹10,000 cap instead.
What happens if a member does not correct a position limit violation?
The member must bring the position within the prescribed limit by the next trading day. If it does not, the exchange squares off the excess position without further notice and bears no responsibility for the consequences.
Are there additional penalties for repeated violations?
Yes. More than three over-2% violations in a calendar month for the same commodity trigger a one-day square-off mode. More than three violations of any kind in a month trigger an additional penalty equal to the penalty already charged, except where the violation arises solely from clubbing of positions.
Where does the penalty amount go?
The penalty is credited to the Investor Protection Fund of the exchange.
When does this circular take effect?
Immediately, from September 9, 2026.
What must Recognized Stock Exchanges do?
Implement the necessary systems, amend their bye-laws, rules and regulations where required, and notify market participants and investors, including through disclosure on their websites.
CorpLawUpdates analysis
Capping the penalty at a fixed rupee amount, rather than leaving it as an open-ended formula, is the clearest Ease-of-Doing-Business signal in this circular — it gives members a predictable worst case rather than a number that scales indefinitely with price and duration. The clubbing-related exemption from the additional repeat-violation penalty is a reasonable carve-out, since clubbing breaches often arise from account-structure technicalities rather than deliberate position-building. The looser end of this circular is the exchange's discretion to raise a reclassified commodity's limit from 1% to 2% "upon satisfaction" — no criteria are specified for that assessment, which could produce inconsistent timelines across exchanges for economically similar commodities. Because the circular states the revised text without restating the provisions it replaces, market participants and their advisors will need to keep a copy of the August 2023 Master Circular on hand to see exactly what has moved.
Legal basis
SEBI has issued this circular in exercise of its powers under Section 11(1) of the Securities and Exchange Board of India Act, 1992, read with Regulation 51 of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.
Document: SEBI Circular — Review of Position Limits for Clients and Penalty Provisions for Violation / Breach of Position Limits for Commodity Derivatives Segment
Issuing authority: Securities and Exchange Board of India, Market Regulation Department
Reference number: HO/47/16/13(5)2026-MRD-POD1/I/20735/2026
Date: September 9, 2026
Signatory: Neetika Rajpal, Deputy General Manager, Market Regulation Department
Primary source: www.sebi.gov.in, under "Circulars" and "Info for Commodity Derivatives"
This article is for informational and educational purposes only and does not constitute legal or regulatory advice. Readers should verify the applicable primary regulatory source before taking action.
