Regulatory desk · Rule explainer · SEBI document · 9 Sep 2026
SEBI sets commodity client limits of 2%, 1% and 0.5% of deliverable supply and caps brokers' penalty at Rs 2,00,000
Rule explainer — no official figure sizes this rule, so this page explains how it works.
The terms this paper uses
What a client position limit is. In commodity derivatives, a client may only hold so many open contracts in one commodity. That ceiling is the client position limit, set as a share of how much of the commodity is actually available to be delivered. It is for trading members, the brokers who place trades on an exchange, and for their clients: the member must keep its own positions and its clients' positions inside the limit, and the member pays when they are not.
The other words this paper uses
What open interest is. Open interest is the total of contracts a person holds that have not yet been closed or settled. A breach happens when that total goes above the limit.
What clubbed client positions are. Where several accounts are treated as one person, their holdings are added together and the limit is tested on the sum. The circular's penalty covers breaches on a member's own account, on a client's account, and on such added-together positions.
What deliverable supply is. Deliverable supply is the amount of a commodity that could actually be handed over to settle contracts. The new test for a broad commodity uses its average over the past five years: at least 10 lakh metric tonnes, or at least INR 5,000 crore in value.
The categories. An agricultural commodity is broad if it meets that supply test and is not a sensitive commodity; the circular also names narrow and sensitive commodities. Each category carries its own client limit, lowest for sensitive commodities and highest for broad ones, and a commodity that moves from narrow to broad under the new test does not get the broad limit straight away.
How the penalty works. The penalty grows with how far the limit was exceeded, the commodity's closing price and how many days the breach lasted, and it has a ceiling; a smaller breach carries a lower ceiling than a larger one. SEBI's text charges it to the member for every day of the breach.
What square-off mode is. Repeated large breaches by one member in the same commodity within a calendar month can lead the exchange to put that member in square-off mode. In square-off mode a member may only close existing positions, not open new ones.
What was there before. SEBI says the position limits being replaced date from 2017 and were set for the market conditions of that time. It also says it had received requests to cap the penalty for breaching them. The changes apply immediately from the circular's issue.
Where commodity trading happens. Commodity derivatives trade mainly on MCX, NCDEX and NSE. In August, NCDEX carried Rs 24,756 crore of agricultural futures turnover, MCX Rs 175.66 crore and NSE none.
Most one trader may hold, as a share of the crop that can be delivered
| Broad | 2% |
| Narrow | 1% |
| Sensitive | 0.5% |
In one line
This reaches commodity brokers directly: SEBI has capped what a broker pays when it or its clients hold more commodity contracts than allowed, and rewritten the limits for agricultural commodities. Anyone else is touched only through the commodity futures market itself.
Illustration — assumed figures, not from the paper
- excess: 1,000 tonnes over the limit (assumed)
- days: 20 days the breach lasts (assumed)
- rate: Rs 100 per tonne per day: an assumed closing price of Rs 5,000 a tonne x the rule's 2%
- cap: Rs 2 lakh
Each day, 1,000 tonnes over the limit at Rs 100 a tonne is Rs 1 lakh a day. Over 20 days, with no cap, that is Rs 20 lakh. The paper caps it at Rs 2 lakh.
- If the cap applies per breach: Rs 2 lakh
- If the cap applies per day: Rs 20 lakh
What the paper sets
What does it require, and where does it say it?
For a client-level open-interest violation above 2% of the prescribed limit, the member's penalty is limit exceeded times closing price times days the violation continued times 2% (0.02), or Rs. 2,00,000/-, whichever is lower.
Where the paper says it · paragraph 2.1, Annexure J item (1)(a)
“a) Where the violation is more than 2% of the prescribed limit(s) – Limit exceeded x Closing price x number of days such violation continued x 2% (0.02) or Rs. 2,00,000/- whichever is lower.”
For a violation of up to 2% of the prescribed limit, the same formula applies but the penalty is capped at Rs. 10,000/-, whichever is lower.
Where the paper says it · paragraph 2.1, Annexure J item (1)(b)
“b) Where the violation is up to 2% of the prescribed limit(s) – Limit exceeded x Closing price x number of days such violation continued x 2% (0.02) or Rs. 10,000/- whichever is lower.”
Commodities that move from narrow to broad because of the new definition keep a 1% limit for one year first.
Where the paper says it · paragraph 2.3
“The commodities which may shift from narrow category to broad category post change in definition of broad category, shall initially retain position limit of 1% for one year.”
What we make of it opinion
What do we think this paper does, and why?
SEBI has capped a broker's penalty for a client's commodity position breach at Rs 2,00,000 where the breach is more than 2% of the limit and at Rs 10,000 where it is up to 2%, with immediate effect. SEBI says the limits it replaces were set in 2017 for the market of that time, and that it had received requests to cap this penalty. The question that decides the money is this: does the Rs 2,00,000 cap apply per breach or per day? The circular charges the penalty for every day of the breach but does not say which, and on a long breach the answer changes the bill many times over.
Why we think so3 reasons
On what grounds?
- The first reason is where the new definition of a broad commodity lands. It is written for agricultural commodities, and agricultural futures trade almost entirely on NCDEX: in August NCDEX carried Rs 24,756 crore of them against Rs 175.66 crore on MCX and none on NSE. So the members who feel the wider limits are NCDEX's, and even they wait a year at the narrower limit before the exchange may raise it.
- The second reason follows from the first: the wider limits change what a client may hold, while the penalty change touches only what a member pays once it is over them. The circular's text leaves open whether its ceiling applies to a breach as a whole or to each day the breach lasts, and that choice decides whether a long breach stays cheap.
- Both of those are about money; the third is about being stopped. A member whose larger breaches in the same commodity keep recurring within a calendar month is put in square-off mode for a day, able only to close positions. Our guess: for an active member that lost day costs more than any penalty, which a member's own account of a square-off day would confirm.
What would prove us wrong3 trip-wires
What would we have to see to drop that read?
- If the new broad test moves few agricultural commodities out of the narrow category, the limit side of this circular changes little and the penalty cap is the whole story.
- If large breaches are rare, the Rs 2,00,000 cap saves brokers little in practice, and the requests SEBI cites mattered more to a handful of members than to the market.
- If exchanges use their review after one year to keep newly broad commodities at 1%, the promised loosening of limits would not arrive at all.
What to watch3 things to watch
What happens next, and when would we know?
- The exchanges' own lists of which agricultural commodities now count as broad, narrow or sensitive, since that list decides whose limit can rise from 1% to 2%.
- Agricultural futures turnover on NCDEX in the months after the circular, against the Rs 24,756 crore traded there in August, to see whether looser limits bring more trading.
- The exchanges' reviews once the first year is over, to see whether commodities that moved to broad are actually raised to the 2% limit.
Who this touches
Who could benefit and who is at risk, and on what condition?
Opinion · adds no figures the Facts do not hold · every effect is potential and states its condition
| Who | Potential effect | How it reaches them | How sure |
|---|---|---|---|
| Brokers & investing apps | ▲ potential benefitif a client's or its own commodity position runs well past the limit | The member pays the penalty itself, so the cap reaches its costs directly. The cap limits the bill for a LARGE breach: however big the excess, the charge stops at Rs 2,00,000, or Rs 10,000 for a breach up to 2% of the limit. Whether it limits a LONG breach depends on whether the cap applies per breach or per day, since the penalty is charged for every day of violation, and the circular leaves that open. | Inferred · the circular does not say whether the cap is per breach or per day |
The evidence
From SEBI's paper, Review of Position Limits for Clients and Penalty Provisions for Violation / Breach of Position Limits for Commodity Derivatives Segment, 9 Sep 2026. The paper.
Also in the paper — what the rule is today, who is covered, and by when
Every line below is quoted from that same paper. Open it.
| Where | What it says | The paper's words |
|---|---|---|
| paragraph 2.1, Annexure J item (1) | The penalty falls on the trading member, for client-level open-interest violations on its own account or its clients' (including clubbed client positions), scaled to the size of the violation and charged for every day it lasts. | “(1) Monetary penalty on the concerned member for violations at Client level in the open interest (either on own account or on account of clients/clubbed client level) are linked to the quantum/value of violation committed and to be charged from the concerned member for every day of violation, as under:” |
| paragraph 2.1, Annexure J item (2) | If the larger kind of violation (item 1(a)) happens more than 3 times in a calendar month for a member in the same commodity, the exchange puts that member in square-off mode for one day. | “(2) In case, the instance at 1(a) above is observed for more than 3 times for a trading member in a calendar month, the Exchange would put the concerned member on square off mode for a period of one day, if the violation is on account of the same commodity.” |
| paragraph 1 | The position limits being replaced date from 2017 and were set for the market conditions of that time. | “The current position limits were introduced in 2017, aligned with market conditions prevailing at that time.” |
| paragraph 1 | SEBI says it received requests to cap the penalty for position-limit violations set under Para 3.4.3. | “Further, representations have been received for capping of penalty for position limit violation as prescribed under Para 3.4.3.” |
| paragraph 2.2 | An agricultural commodity counts as a 'Broad Commodity' if it is not a 'Sensitive Commodity' and meets the criteria that follow (it points forward to the next sentence). | “An agricultural commodity will be classified as 'Broad Commodity' if it is not a 'Sensitive Commodity' and satisfies the following criteria:” |
| paragraph 2.2 | The new test for a broad commodity: average deliverable supply over the past five years of at least 10 lakh metric tonnes, or at least INR 5,000 crore in value. | “Average deliverable supply for past five year s is at least 10 Lakh Metric Ton (MT) in quantitative terms or is at least INR 5,000 Crore in monetary terms.” |
| paragraph 2.3, table | Client-level position limits are set per category: broad commodities 2%, narrow 1% and sensitive 0.5% of deliverable supply. | “Broad 2% of the deliverable supply Narrow 1% of the deliverable supply Sensitive 0.5% of the deliverable supply” |
| paragraph 2.3 | After that period (pointing back to the preceding sentence), the exchange may review such commodities and raise their limit to 2%, the broad-category limit. | “Thereafter, pursuant to a review by the exchange and upon satisfaction, the exchange may increase the position limit of such commodities to 2% as per the applicable position limits for the broad category.” |
| paragraph 3 | The changes apply immediately from the circular's issue. | “The circular shall come into force with immediate effect.” |
| Figure | Reading | Date | A year earlier | Where from |
|---|---|---|---|---|
| MCX agriculture commodity futures turnover, month | Rs 175.66 crore | 31 Aug 2026 | sebi.gov.in | |
| NCDEX agriculture commodity futures turnover, month | Rs 24,756.00 crore | 31 Aug 2026 | sebi.gov.in |
What else we hold on this
We hold 5 other SEBI documents on this subject, published between 11 Feb 2026 and 12 Aug 2026 — and none of them has become a card. They are the store's, not the paper's: nothing below is cited by the document above.
- Review of Inclusion of Historical Scenarios in — deliberately pushing a system with far more orders or trades than a normal day brings, to find out where it breaks for Commodity…12 Aug 2026 · no card written
- Clarification with respect to applicability of the benefit of early pay-in in…19 Jun 2026 · no card written
- — a proposal the regulator publishes to invite comment before it decides; it binds nobody yet on Draft Circular on Clarification with respect to Applicability…5 May 2026 · no card written
- Review of Coverage of Settlement Guarantee Fund for Commodity Derivatives Segment16 Mar 2026 · no card written
- Capacity Planning and Real Time Performance Monitoring framework for Commodity…11 Feb 2026 · no card written
Go deeper
Whether we have said this before
1 of them became a card.
Audit trail: how this card was checked, and the store's own notes
Status: Clear. the rule is issued and every fact is quoted from SEBI's own text
Computed by us, from the published figures:
Exact figures: 12 quoted facts from Review of Position Limits for Clients and Penalty Provisions for Violation / Breach of Position Limits for Commodity Derivatives Segment; the warning on every one: none.
What the source itself warns about
Words used on this page, in plain English
- stress testing
- deliberately pushing a system with far more orders or trades than a normal day brings, to find out where it breaks
- consultation paper
- a proposal the regulator publishes to invite comment before it decides; it binds nobody yet