Commodity futures contracts: Sebi comes out with daily price limits framework

Market Updates: The market regulator Sebi released a new framework for setting the daily price limit for commodity futures contracts. This was done to fix the difference between the closing prices at the domestic exchange and the global bourse. The Daily Price Limits (DPLs) show how much the price of a futures contract on a commodity can change in one trading session.

These limits protect investors from sudden and extreme price changes and give them a chance to re-evaluate the information and fundamentals that affect the price of the commodity futures contract during a cooling-off period. The Securities and Exchange Board of India (Sebi) said in a circular that the Indian bourses told them that the closing price on the domestic exchange is different from the closing price on the international exchange, even after the necessary currency conversion. This is because of a difference in how the closing price is calculated.

Because of these differences in closing prices, the total DPL range on the domestic exchange may be lower or higher than the prices on the international exchange in the next trading session. To solve the issue, Sebi said that if the price change on the international markets is more than the aggregate DPL or if the international price is outside the aggregate DPL range (after the appropriate currency conversion) when compared to the closing price on the domestic exchange the day before, the same may be further relaxed by the exchange in steps of 3% after a 15-minute cooling-off period. When this happens, the domestic stock exchanges will have to give the market a proper notice with all the details and reasons for the change.

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