Position Limits for Agricultural Commodity Derivatives
Summary
This circular establishes a principle-based methodology for determining position limits for agricultural commodity derivatives based on deliverable supply. It mandates the categorization of commodities into sensitive, broad, and narrow classes to calculate specific client-level open position limits. The document also updates exchange-wide limits and requires exchanges to jointly notify revised numerical values annually.
Text
Agricultural commodities shall be classified into three categories viz., sensitive, broad and narrow as below:- 3.1.1. Sensitive Commodity: An agricultural commodity shall be classified as a sensitive commodity if it: 3.1.1.1. is prone to frequent Government/External interventions... or 3.1.1.2. has observed frequent instances of price manipulation in past five years of derivatives trading. 3.1.2. Broad Commodity: An agricultural commodity shall be classified as ‘Broad Commodity’ if it is not ‘Sensitive Commodity’ and satisfies following criteria; 3.1.2.1. Average deliverable supply for past five year is at least 10 lakh Metric Ton (MT) in quantitative term and is at least INR 5,000 Crore in monetary term. 3.1.3. Narrow Commodity: An agricultural commodity which is not falling in either of the above two categories, viz ‘Sensitive’ or ‘Broad’ commodity, shall be classified as ‘Narrow Commodity’.
The deliverable supply for an agricultural commodity would be “Production + Imports”
Numerical value of overall client level open position limits for each commodity shall be calculated from 'deliverable supply' available in a particular year, as per its category as given below: Category of Commodity Position limits Broad 1% of the deliverable supply Narrow 0.5% of the deliverable supply Sensitive 0.25% of the deliverable supply 3.3.1. The numbers arrived based upon above formula should be rounded off downward to appropriate number of zeroes.
All the national commodity derivatives exchanges shall jointly classify agricultural commodities into the afore-stated three categories on annual basis as per the principles indicated at para No. 3.1 above.
Whenever an agricultural commodity of 'narrow' category is required to be re-categorized to 'broad' in subsequent years, such re-categorization may be possible only if both, average deliverable supply of such commodity for the past five years and monetary value thereof as mentioned at Para ‘3.1.2.1’ exceeds by more than 5%.
For determination of 'deliverable supply' of various agricultural commodities for each year, the national commodity derivatives exchanges shall take into account the latest production figures of such commodities as annually declared by relevant government sources or from the latest ‘third advance estimates’ of agricultural commodities published by the Ministry of agriculture or any other yearly estimates/assessments of production and imports made by any governmental agencies... The national commodity derivatives exchanges shall indicate the sources from which the production and import / export data have been obtained...
Every year, for each agricultural commodity that is being traded in the derivatives market, all national commodity derivatives exchanges shall jointly complete the exercise of determination of ‘deliverable supply, categorization/re-categorization of commodities and computation of numerical value of position limits. Numerical values of position limits for any agricultural commodity shall be revised only if the computation results in a revision in the value by at least 5% compared to previous year's limits. Exchanges shall, after prior intimation to SEBI, notify such details to the market through their respective websites sufficiently in advance and latest by 31st of July... of every year and revised limits shall become applicable for all running contracts with effect from 1st of September of every year.
However for the current year, given the paucity of time, all the national commodity derivatives exchanges are directed to complete this exercise at earliest and notify the same to the market within 20 days of the circular under prior intimation to SEBI and the revised limits shall become applicable for all running contracts with effect from October 1, 2017
In the interest of trade and public, SEBI may exercise its due discretion in modifying the aforesaid position limits at any time during the year.
As already prescribed in Para ‘5.3’ of SEBI Circular dated September 27, 2016, the overall member level position limits for an agricultural commodity across all the contracts shall be 10 times the numerical value of client level position limit or 15% of the market-wide open interest, whichever is higher.
“For any agricultural commodity, the overall Exchange-wide gross position limit on open interests hall be 50% of its 'deliverable supply' determined for the relevant year, which shall also be jointly notified by Exchanges along with client level numerical limits.“
In this regard all national commodity derivatives exchanges are directed to jointly formulate a uniform guidelines and disclose the same to the market within 30 days from the date of this circular.
You have read the preview. Create a free account to read the full document and see every order that applied it.
Free accounts include 10 searches/day with full text access.
Source: SecMarx — Position Limits for Agricultural Commodity Derivatives. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.