SEBI classifies agricultural commodities as sensitive, broad and narrow

The Securities and Exchange Board of India (SEBI) has created three categories for agricultural commodities and has prescribed position limits that investors can hold for each category of commodities, in a bid to reduce price volatility. These commodities have been classified as ‘Sensitive’, ‘Broad’ and ‘Narrow’ based on the frequency of government interventions and other extraneous factors affecting markets and the overall availability.
 
“'In any given year, based on the average of production data and import data of past five years on a rolling basis and keeping in view various extraneous factors that affect trading in derivatives, the agricultural commodities shall be classified into three categories,” the regulator said. The overall client level position limit for sensitive commodities will be 0.25% of deliverable supply, while it will be 0.5% for narrow commodities and 1% for broad commodities, SEBI added.
 
An agricultural commodity may be classified as sensitive if it is prone to frequent government/external interventions. These interventions may be in the nature of stock limits, import/export restrictions or any other trade-related barriers; or has observed frequent instances of price manipulation in the past five years of derivatives trading, SEBI said.
 
An agricultural commodity shall be classified as a broad commodity if it is not a sensitive commodity and satisfies the criteria, including average deliverable supply of at least 10 lakh tones for the past five years (in quantity terms) and at least Rs 5,000 crore in monetary terms. An agricultural commodity not falling in either the sensitive or broad category may be classified as narrow commodity. 
 
The deliverable supply for an agricultural commodity would be production and imports. SEBI has asked all the national commodity derivatives exchanges to jointly classify agricultural commodities on an annual basis as per the prescribed criteria.