Position Limits for Commodity Derivatives, clubbing of open positions, penalties for violation of position limits

CIRCULAR SEBI/HO/CDMRD/DMP/CIR/P/2016/96

September 27, 2016

To,

The Managing Directors / Chief Executive Officers

All National Commodity Derivatives Exchanges

Sir / Madam,

Sub.: Position Limits for Commodity Derivatives, clubbing of open positions, penalties for violation of position limits

1. Erstwhile FMC had from time to time prescribed norms with regard to Position limits for all commodity derivatives, clubbing of open positions, penalties for violation of position limits apart from prescribing numerical limits for each commodity. After taking over regulations of commodity derivatives market, SEBI vide its circulars CIR/CDMRD/DMP/2/2016 dated January 15, 2016 and CDMRD/DMP/CIR/32/2016 dated January 29, 2016 has issued revised norms with regard to position limits of agricultural commodity derivatives.

2. This circular is hereby issued in continuation of the above said SEBI circulars with an objective of consolidating and updating norms with regard to position limits and also to prescribe numerical position limits for all commodities which are presently being traded on the Commodity Derivatives Exchanges.

3. General Norms for Position Limits in Commodity Derivatives:

The following norms shall be applicable to the Agricultural as well as NonAgricultural commodity derivatives at commodity level:

3.1.Numerical value of overall client level open position limits, shall be applicable for each commodity as are provided in table given in Annexure- A to this circular.

3.2.The Exchanges, however, in their own judgment, may prescribe limits lower than what is prescribed by SEBI by giving advance notice to the market under intimation to SEBI.

3.3.For the purpose of position limits, norms applicable on client level positions shall also be applicable to the proprietary positions of trading members and while calculating member’s open positions, his proprietary positions shall be treated and computed like a client’s positions.

3.4.For the purpose of calculating overall position of a member, the overall position of its all clients (as determined in Clause ‘3.1 or 4.1’below) shall be added without netting off among themselves as also against proprietary positions of the member. Thus, all long clients and all short clients shall be added up separately and higher of the two shall be reckoned as Member’s open position in a commodity derivative.

4. Position Limits for Non Agricultural Commodity Derivatives: The following norms shall continue to be applicable to Non- Agricultural commodity derivatives at commodity level:-

4.1.For the purpose of calculating overall position of a client, all long and short positions of the client across all contracts shall be netted out.

4.2.Client level position limits shall be equivalent to the numerical level limit as given in table in Annexure- A or 5% of market-wide open interest, whichever is higher.

4.3.Member level position limits shall be 10 times of the numerical value of client level position limits or 20% of the market-wide open interest, whichever is higher.

5. Position Limits for Agricultural Commodity Derivatives: As prescribed vide SEBI circulars dated January 15, 2016 and January 29, 2016, following norms shall be applicable on Agricultural commodity derivatives at commodity level:-

5.1.For the purpose of calculating positions of a client, all long and short positions of the client across all contracts shall be added up separately and higher of the two shall be considered as his overall open position.

5.2.The overall Client level position limits across all contracts shall be equivalent to the numerical level limit as given in table in Annexure- A.

5.3.The overall member level position limits across all contracts shall be 10 times the numerical value of client level position limit or 15% of the market-wide open interest, whichever is higher.

5.4.Near Month Position Limits: In case of near month contracts :

5.4.1.Client level position limits shall be equivalent to the one fourth of the overall Client level position limit as prescribed in table in AnnexureA.

5.4.2.Member level position limits shall also be equivalent to the one fourth of the overall member level position limit.

5.5.The overall Exchange wide gross position limit, in case of the agricultural commodities, shall be capped at 50% of the annual estimated production and Imports of the commodity. The annual estimates for production and imports may be sourced from the available estimates published by Government of India/Ministry of Agriculture/ Institutions/Agencies/ other Departments of Central and State Government, as may be appropriate.

6. Clubbing of Open Positions: While calculating open positions for the purpose of position limits, Exchanges shall take suitable measures for clubbing of open positions of clients/members who may be acting in concert to circumvent the norms of position limits. The broad guidelines for clubbing of open positions are provided in Annexure- B to the circular.

7. Monitoring of position limits: Exchanges shall monitor the open position on a real time basis, and shall endeavour that no client or member breaches the open position limits 'at end of the day' as well as 'during intra-day trading'. Penalty shall be levied on those breaching the position limits at end of the day as well as during intra-day trading as provided in Annexure-C to this circular.

8. The provisions of this circular shall come into effect from September 29, 2016 in supersession of all directives issued by erstwhile FMC with regard to matters related to Position Limits, clubbing of open positions, penalties for violation of position limits.

9. The Exchanges are advised to: i. take steps to make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the same. ii. bring the provisions of this circular to the notice of the members of the Exchange and also to disseminate the same on their website. iii. communicate to SEBI, the status of the implementation of the provisions of this circular.

10.This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act, 1992, to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

11.This circular is available on SEBI website at www.sebi.gov.in.

Yours faithfully,

Vikas Sukhwal

Deputy General Manager

Division of Market Policy Commodity Derivatives Market Regulation Department

Email: vikass@sebi.gov.in

Please refert to the attached file for details