Executive Summary:
This circular, issued by SEBI on September 27, 2022, modifies the Daily Price Limits (DPL) for commodity futures contracts to address discrepancies between domestic and international closing prices. It replaces clauses 7.4 and 7.5 of the earlier circular (SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 dated January 11, 2021) and is effective immediately upon issuance. Exchanges must inform SEBI of DPL relaxation instances in their Monthly Development Report.
Key Points / Main Content:
Revised Daily Price Limit (DPL) Norms:
* Clause 7.4 of the January 11, 2021 circular is replaced: If international market price movements exceed the aggregate DPL or are beyond the aggregate DPL range after currency conversion, exchanges may relax the DPL in stages of 3% with a 15-minute cooling-off period. Exchanges must notify the market with relevant details and justifications.
* Clause 7.5 of the January 11, 2021 circular is replaced: In exceptional circumstances involving extreme international price movements beyond the initial DPL slab during or after domestic trading hours, exchanges can directly relax the DPL to the required level, following the notification procedure in clause 7.4.
Reporting and Clarification:
* Exchanges must inform SEBI of all instances of DPL relaxation under clauses 7.4 and 7.5 in their Monthly Development Report, as per SEBI Circular No. CIR/CDMRD/DEA/4/2015, dated December 09, 2015.
* Breach of the initial DPL slab is not mandatory for implementing clauses 7.4 and 7.5.
Other Provisions:
* All other terms and conditions specified in circular no. SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 dated January 11, 2021 remain unchanged.
Impact Analysis:
Stock Exchanges:
* Impact: Stock exchanges are impacted as they need to implement the modified DPL relaxation process and provide justifications for doing so, and report instances of DPL relaxation to SEBI.
* Action Required: Modify DPL relaxation procedures, ensure compliance with revised clauses 7.4 and 7.5, provide market notifications, and report relaxation instances in the Monthly Development Report.
Commodity Market Participants (Investors):
* Impact: Investors are impacted because the DPL may be relaxed more frequently and by larger increments, based on international market movements.
* Action Required: Monitor exchange notices regarding DPL relaxations and adjust trading strategies accordingly.
SEBI:
* Impact: SEBI is impacted as they will be receiving more reports about DPL relaxations.
* Action Required: Monitor reports from exchanges and take appropriate action as needed.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): The regulatory body for securities and commodity markets in India.
Daily Price Limits (DPL): Refers to the price fluctuation limits set for commodity futures contracts on exchanges.
Commodity Futures Contracts: Agreements to buy or sell a specific commodity at a predetermined price at a specified future date.
SEBI Circular No. SEBIHOCDMRDDNPMPCIRP20219: A previous circular issued by SEBI on January 11, 2021, regarding Daily Price Limits (DPL) for commodity futures contracts, which is being modified by this circular.
Commodity Derivatives Segment: A specific section within exchanges dealing with trading in commodity derivatives.
Securities and Exchange Board of India Act, 1992: The legislation that established SEBI and defines its powers and functions.
Monthly Development Report: A periodic report submitted by stock exchanges to SEBI, containing details of market developments and regulatory compliance.
Stock Exchanges: Platforms where securities and commodities are traded, responsible for implementing and monitoring DPL regulations.
CIRCULAR
SEBI/HO/MRD/MRD-PoD-1/P/CIR/2022/128 September 27, 2022
The Managing Directors / Chief Executive Officers
Of All Exchanges having Commodity Derivatives Segment
Sir / Madam,
Subject: Modification in Daily Price Limits (DPL) for Commodity Futures
Contracts
1. SEBI vide Circular No. SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 dated January
11, 2021 has revised the norms for Daily Price Limit (DPL) for commodity futures
contracts.
2. The exchanges have informed that closing price on domestic exchange differs from
closing price on international exchange/s (after necessary currency conversion),
because of difference in methodology of calculation of closing price. Due to such
difference in closing price, the aggregate DPL range on domestic exchange may
lag behind (either upwards or downwards) the prices on international exchange in
next trading session.
3. To resolve the above, the Clause 7.4 of aforementioned SEBI Circular is
substituted with the following:
“7.4 In case the price movement in the international markets is more than the
aggregate DPL or if international price is beyond aggregate DPL range (after
appropriate currency conversion) when compared with closing price on previous
day on domestic exchange, the same maybe further relaxed in stages of 3% by the
Exchange with cooling off period of 15 minutes. For such instances, the Stock
Exchanges shall give appropriate notice to the market along with all the relevant
details and justification for the same.”
4. Further, to maintain parity between Para 7.4 and Para 7.5 of the instant SEBI
Circular, Para 7.5 is substituted with the following:
“7.5 Only in the event of exceptional circumstances, where there is extreme price
movement, beyond the initial slab of the DPL, in the international markets, during
trading hours or after the closure of trading on domestic exchanges, the stock
Page 1 of 2exchanges can relax the DPL directly by the required level, by giving appropriate
notice to the market, as per para 7.4. above.”
5. The stock exchanges shall inform SEBI of all such instances of relaxation of DPL
pursuant to Para 7.4 and Para 7.5 above, under Para 10 of Section I in the Monthly
Development Report being submitted as per SEBI Circular No.
CIR/CDMRD/DEA/4/2015, dated December 09, 2015.
6. It is clarified that breach of slab is not essential for implementation of Clause 7.4
and Clause 7.5 of SEBI Circular SEBI/HO /CDMRD/DNPMP/CIR/P/2021/9 dated
January 11, 2021.
7. The circular shall be effective from the date of issuance of this circular.
8. All other terms and conditions specified in circular no. Circular No. SEBI/HO
/CDMRD/DNPMP/CIR/P/2021/9 dated January 11, 2021 shall remain the same.
9. This Circular is issued in exercise of the 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.
10. The Circular is issued with the approval of the competent authority.
11. This circular is available on SEBI website www.sebi.gov.in under the category
“Circulars” and “Info for Commodity Derivatives”
Yours faithfully,
Naveen Sharma
General Manager
Policy and Development 1 (Commodities)
Market Regulation Department
naveens@sebi.gov.in
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