Executive Summary:
This SEBI circular revises the Daily Price Limits (DPL) for commodity futures contracts, excluding Index Futures and options, to protect investors from extreme price movements while enabling fair price discovery. It details revised norms for agricultural and non-agricultural commodities, breach of slab rules, and DPL calculations for the first trading day. The circular is effective from April 1, 2021, repealing previous circulars on the same subject.
Key Points / Main Content:
* **General Provisions:**
* DPLs define the maximum price range for commodity futures contracts in a single trading session.
* Base price for DPL calculation is the previous day's closing price.
* Stock exchanges must ensure order acceptance is within prescribed DPL slabs.
* **Agricultural and Agri-processed Goods:**
* DPLs are linked to broad, narrow, and sensitive categories defined by SEBI circular no. SEBIHOCDMRDDMPCIRP201784.
* Table A outlines the Initial Slab, Enhanced Slab, and Aggregate DPL for each category.
* A 15-minute cooling-off period is required after the initial slab is breached before applying the enhanced slab.
* **Non-Agricultural Goods:**
* Table B details Initial Slab, Enhanced Slab, and Aggregate DPL for Energy, Metals and Alloys, Precious Metals, Gems and Stone, and Other Non-agricultural goods.
* Trading beyond Aggregate DPL is permitted for Energy, Metals and Alloys, and Precious Metals, with further relaxation in stages of 3% and a 15-minute cooling-off period if international market movements exceed the aggregate DPL.
* Stock Exchanges must inform SEBI's Integrated Surveillance Department (ISD) about DPL relaxations beyond Aggregate DPL.
* In exceptional cases, exchanges can relax DPLs directly with appropriate notice to the market and SEBI's ISD.
* **First Trading Day DPL:**
* Base price calculation for the first trading day:
* VWAP of the first half-hour (minimum ten trades).
* If insufficient trades, VWAP of the first hour (minimum ten trades).
* If still insufficient, VWAP of the first ten trades.
* If no or less than ten trades occur, the exchange must use and disclose an appropriate methodology.
* **Closing Price/Daily Settlement Price (DSP) Calculation:**
* DSP determined in the following order:
* VWAP of all trades in the last half-hour.
* If less than 10 trades, VWAP of the last 10 trades.
* If less than 10 trades or no trades, the exchange must use and disclose an appropriate methodology.
* Exchanges can increase the minimum trade number based on liquidity criteria approved by their Risk Management Committee.
* **Other Provisions:**
* Stock exchanges can prescribe narrower DPLs based on price movement analysis and surveillance findings.
* SEBI Circular No SEBIHOCDMRDDMPCIRP201683 dated September 07, 2016 and Clause 1a of SEBI Circular no. CIRCDMRDDMP22016 dated January 15, 2016 are repealed from April 1, 2021.
Impact Analysis:
* **Recognized Stock Exchanges and Clearing Corporations:**
* *Impact:* Must revise systems to comply with the new DPL norms, including order acceptance and DPL breach protocols. They also need to determine base prices, closing prices, and settlement prices according to the new guidelines and disclose methodologies on their website.
* *Action Required:* Implement necessary system changes, amend byelaws, rules, and regulations, inform stockbrokers, disseminate circular on their website, and communicate implementation status to SEBI.
* **Stock Brokers:**
* *Impact:* Must be aware of the revised DPLs and ensure trading activities comply with the new limits.
* *Action Required:* Understand the provisions of the circular.
* **Investors:**
* *Impact:* Affected by the revised DPLs, which are designed to protect them from sudden and extreme price movements.
* *Action Required:* Be aware of the revised DPL framework and how it may affect their trading strategies.
Key Entities Referenced
Securities and Exchange Board of India (SEBI): Regulatory body for the securities market in India, responsible for protecting investors and regulating the market.
Daily Price Limits (DPL): The maximum range within which the price of a commodity futures contract can move in one trading session.
Commodity Derivatives Segment: A specific section within stock exchanges and clearing corporations that deals with commodity derivatives trading.
Stock Exchanges: Recognized entities that facilitate the trading of stocks and other securities.
Clearing Corporations: Organizations that handle the post-trade processes of securities transactions, including clearing and settlement.
Integrated Surveillance Department (ISD): Department within SEBI responsible for monitoring market activities and identifying potential irregularities.
Commodity Futures Contracts: Standardized contracts for the future delivery of a commodity, traded on exchanges.
Securities and Exchange Board of India Act, 1992: The law that established SEBI and grants it powers to regulate the securities market.
CIRCULAR
SEBI/HO/CDMRD/DNPMP/CIR/P/2021/9 11th January, 2021
The Managing Directors / Chief Executive Officers
All Recognized Stock Exchanges and Clearing Corporations having
Commodity Derivatives Segment
Dear Sir / Madam,
Sub: Revision in Daily Price Limits (DPL) for Commodity Futures Contracts
1. The Daily Price Limits in commodity futures market serve an important function
of defining the maximum range within which the price of a commodity futures
contract can move in one trading session. The defined daily price limits protect
investors from sudden and extreme price movements and provides cooling-off
period to re-assess the information and fundamentals impacting the price of the
commodity futures contract. Thus, DPLs can neither be too narrow nor too wide
as it will restrict fair price discovery.
2. SEBI vide Circular no. CIR/CDMRD/DMP/2/2016 dated January 15, 2016 and
Circular no. SEBI/HO/CDMRD/DMP/CIR/P/2016/83 dated September 07, 2016
had issued norms for Daily Price Limits (DPL) for agricultural and non-
agricultural commodity derivatives. Continuing with SEBI’s endeavor to develop
the commodity derivatives market and in consultation with the stock exchanges,
the norms for DPL for commodity futures contracts (excluding Index Futures
and options) are being revised. The revised norms are given below.
3. Base price for DPL: The base price for fixing the DPL slabs shall be the
previous day’s closing price of the underlying contract on the respective stock
exchange.
4. Order Acceptance: The stock exchanges shall ensure that their system should
only accept those orders which are within the relevant prescribed slab at any
point of time.
5. Breach of slab: A breach of the slab shall be considered when trading in a
contract is executed at the upper or lower band of the prescribed slab.
Page 1 of 56. DPL for Commodity futures contracts which are based on agricultural and
agri-processed goods
6.1. SEBI vide circular no. SEBI/HO/CDMRD/DMP/CIR/P/2017/84 dated July
25, 2017 prescribed a framework to categorize agricultural commodity
derivative contracts into “broad”, “narrow” and “sensitive” categories.
Henceforth, the DPL shall be linked to the said classification of agricultural
and agri-processed goods.
6.2. Accordingly, the DPL for commodity futures contracts based on agricultural
and agri-processed goods has been revised as under:
Table A
Category Initial Slab Enhanced Slab Aggregate DPL
Broad 4% 2% 6%
Narrow 4% 2% 6%
Sensitive 3% 1% 4%
6.3. Once the initial slab limit is breached in any contract, then, after a cooling-
off period of 15 minutes, this limit shall be increased further by enhanced
slab, only in that contract.
6.4. During the cooling-off period of 15 minutes, the trading shall be permitted,
within the initial slab limit.
6.5. After the DPL is enhanced, trading shall be permitted throughout the day
within the enhanced Aggregate DPL.
7. DPL for Commodity futures contracts which are based on non-
agricultural goods
7.1. Following slabs shall be applied for DPL on futures contracts based on non-
agricultural goods:
Table B
Category Initial Enhanced Aggregate Trading beyond
Slab Slab DPL Aggregate DPL
Energy 6% 3% 9% Yes
Metals and Alloys 6% 3% 9% Yes
Precious Metals 6% 3% 9% Yes
Gems and Stone 3% 3% 6% No
Other Non- 6% 3% 9% No
agricultural goods
Page 2 of 57.2. Once the initial slab limit is breached in any contract, the DPL for that
contract shall be relaxed further by the ‘Enhanced Slab’ after the cooling off
period of 15 minutes in the trading.
7.3. During the cooling off period trading shall continue to be permitted within
the previous slab of DPL.
7.4. In case the price movement in the international markets is more than the
aggregate DPL, the same may be further relaxed in stages of 3% by the
Exchange with cooling off period of 15 minutes. For such instances, the
Stock Exchanges shall immediately inform the Integrated Surveillance
Department (ISD) of SEBI about any such relaxation of DPLs beyond
Aggregate DPL, along with all the relevant details and justification for the
same.
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 exchanges can relax the DPL directly by the required
level, by giving appropriate notice to the market and also inform the
Integrated Surveillance Department (ISD) of SEBI immediately, as per para
7.4. above.
8. DPL on First Trading Day of the Contract
8.1. In order to prescribe DPL slabs for the first trading day (launch day) of each
contract, Stock Exchange shall determine base price as under:
8.1.1 Volume Weighted Average Price (VWAP) of the first half an hour,
subject to minimum of ten trades
8.1.2 If sufficient number of trades are not executed during the first half
an hour, then the VWAP of first hour trade subject to minimum of
ten trades shall be considered.
8.1.3 If sufficient number of trades are not executed even during the first
hour of the day, then VWAP of the first ten trades during the day
shall be considered.
8.2. The base price arrived as per Para 8.1.1 or Para 8.1.2 or Para 8.1.3 above,
as the case may be, shall be calculated by the Exchange and shall be used
to determine DPL for the remaining part of the day.
Page 3 of 58.3. However, in case there is no trade during the day or there are less than ten
trades during the day, the exchange shall adopt an appropriate
methodology for determining the base price and disclose the same on their
website for dissemination to the stakeholders. DPL on the next trading day
will be applicable on such base price.
9. Calculation of closing price or daily settlement price (DSP)
9.1. The Stock Exchange / Clearing Corporation shall determine the closing
price or daily settlement price in the following order:
9.1.1 VWAP of all trades done during last half an hour of the trading day;
9.1.2 If the number of trades during last half an hour is less than 10, then
DSP shall be based on the VWAP of the last 10 trades executed
during the day;
9.1.3 If the number of trades done during the day is less than 10 or no trade
has been executed in a contract on a day, the stock exchange/
clearing corporation shall adopt an appropriate methodology for
determining daily closing price/ settlement price and disclose the
same on their website for dissemination to the stakeholders.
9.2. The Stock Exchange / Clearing Corporation can increase the number of
minimum trades based on the liquidity criteria set by the Exchange /
Clearing Corporation. Approval shall be taken from their Risk Management
Committee on liquidity criteria and disclosed by them on their website.
10. For any commodity futures contracts, the stock exchange at its discretion, may
prescribe DPL narrower than the slabs prescribed above based upon reasons
including analysis of price movements, findings pertaining to surveillance, etc.
11. The Stock Exchanges and Clearing Corporations, shall make necessary
changes in their systems, as may be required.
12. The provisions of this Circular shall come into effect from April 1,2021.
13. SEBI Circular No SEBI/HO/CDMRD/DMP/CIR/P/2016/83 dated September 07,
2016 and Clause 1(a) of SEBI Circular no. CIR/CDMRD/DMP/2/2016 dated
January 15, 2016 shall stand repealed from the date of implementation of this
Circular.
Page 4 of 514. 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.
15. The Stock Exchanges are advised to:
15.1. to make necessary amendments to the relevant bye-laws, rules and
regulations;
15.2. bring the provisions of this circular to the notice of the stock brokers of
the Exchange and also to disseminate the same on their website; and
15.3. communicate to SEBI, the status of the implementation of the provisions
of this circular.
16. This circular is available on SEBI website www.sebi.gov.in under the category
“Legal - Circulars” and “Info for Commodity Derivatives”.
Yours faithfully,
Naveen Sharma
General Manager
Division of Market Policy
Commodity Derivatives Market Regulation Department
Email: naveens@sebi.gov.in
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