Sebi restricts open positions for farm commodity futures

Markets regulator Sebi on Friday put restrictions on open position limits in futures trading for all agricultural commodities -- a move that follows suspected price-position mismatch in case of castor seeds at NCDEX.

The curb on open position limits in futures trading has been put at client level (individual traders) as well as member level (brokers). With regard to client, the regulator said that overall position limit for a particular commodity would be restricted to numerical position limits as mandated from time to time, as per circular issued by Securities and Exchange Board of India (Sebi).

At present, the numerical position limits as existing would be continued. However, Sebi said that client level position limit equal to five per cent of market wide open interest permitted earlier, is hereby discontinued. 

For brokers, Sebi said that overall position limit for a commodity would be the numerical position limits as mandated from time to time or 15 per cent of market wide open interest, whichever is higher. The markets regulator said that near month position limit for a commodity would be restricted to one-fourth of the client as well as trading member level overall position limit in that commodity.

The circular would become effective from March 1, 2016. The decision comes after Sebi had sought explanation from commodities derivative exchange NCDEX in the matter of castor seed contracts, whose futures trading was suspended earlier this week. Sebi has asked the National Commodities and Derivatives Exchange (NCDEX) to explain what were the factors that led to suspension of trading and also the measures that were being taken by the exchange while positions were built up in that commodity, sources had said. 

The regulator has been keeping a tight vigil on the commodities derivatives market ever since it began regulating it pursuant to the merger of erstwhile commodity regulator FMC with it. In order to calculate overall position, Sebi on Friday said that all long and short positions of the client across all contracts on the underlying will be added up separately and higher of the two would be considered as overall open position.

Further, to calculate near month open position, higher of long and short positions of the client in near month contracts would be considered. "Thus henceforth, netting out near-month contract with off-setting positions in far months contracts shall not be permitted for the purpose of computation of near month position of any client," Sebi said.