Sebi to impose fresh intraday derivative position limits from October 1

The Securities and Exchange Board of India (Sebi) has introduced a new framework to monitor intraday trading positions in index options, aimed at strengthening transparency and risk management in the derivatives market.

Effective October 1, the rules are likely to impact institutional traders, proprietary desks, and large market participants who typically take sizable positions during the day, particularly on expiry sessions.

Under the new guidelines, Sebi has introduced intraday position limits for index options trades, measured in terms of what is called "Future Equivalent" or FutEq, a common metric used to compare options and futures positions on the same scale.

According to the Sebi's circular issued on September 1, traders will now be allowed to take a maximum of Rs 5,000 crore worth of intraday net positions (after offsetting longs and shorts) and Rs 10,000 crore in gross positions (long and short positions counted separately) in index options. These limits are applicable per trading entity and will be monitored throughout the day.

To ensure compliance, Sebi has instructed stock exchanges to conduct at least four random checks of traders’ positions during the trading session. One of these snapshots must be taken between 2:45 PM and 3:30 PM, a period known for increased market activity due to expiry-related trades.

The position value will be calculated using the index price at the time of the snapshot.

Sebi said the move follows instances of large, aggressive intraday positions on expiry days that raised concerns over market integrity and volatility. The new framework seeks to curb outsized trades without discouraging regular activity, offering headroom for liquidity providers and institutional traders while capping risk exposure.

Entities breaching these limits will be subject to scrutiny by the exchanges. This may include providing explanations for the trades, reviewing any trading activity in the underlying index stocks, and reporting such instances to Sebi for further surveillance. Additionally, on expiry days, breaching the prescribed intraday limits could lead to penalties or additional surveillance deposits.

However, traders will still be allowed to take extra exposure if they have sufficient collateral, such as cash or securities, in line with earlier circulars issued by Sebi. This ensures that genuine trades backed by assets aren’t unnecessarily restricted.

These measures are currently applicable only to index options such as those on the Nifty and Bank Nifty, and not to stock options or futures.

The provision related to expiry-day penalties will come into effect slightly later, from December 6, coinciding with the end of an ongoing glide path to gradually implement Sebi’s broader risk management framework in derivatives.

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Market infrastructure institutions (MIIs), including stock exchanges and clearing corporations, have been asked to publish a Standard Operating Procedure (SOP) for market participants and make system-level changes to ensure smooth implementation.

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