SEBI Increases Index F&O Position Limits for Trading Members to ₹7,500 Crore

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SEBI Increases Index F&O Position Limits for Trading Members to ₹7,500 Crore

The circular dated October 15 also said that the mechanism for monitoring the position limits will be changed. This will come into effect from April 1, 2025

October 15th, 2024 News

In a significant move aimed at enhancing liquidity in the equity derivatives market, the Securities and Exchange Board of India (SEBI) has announced an increase in position limits for trading members (TMs) in index futures and options contracts. The revised limit is set at ₹7,500 crore or 15% of the total open interest (OI) in the market, whichever is higher. This change, detailed in a circular issued today, marks a substantial increase from the previous limit of ₹500 crore.

Key Highlights:

New Position Limits:
- Trading members can now hold positions cumulatively for client and proprietary trades in index futures and options contracts at ₹7,500 crore or 15% of the total OI, whichever is greater.
Change in Monitoring Mechanism:
- SEBI will introduce a new monitoring mechanism that will take effect on April 1, 2025. Under this system, positions in the equity derivatives segment (both index and stocks) will be tracked based on the total open interest at the end of the previous day's trading.
No Penalties for Passive Breaches:
- In scenarios where there is a drop in market open interest compared to the previous day, trading members may unintentionally exceed their position limits without penalties, provided their positions remain unchanged throughout the day.

Circular Details:

The SEBI circular stated, “The overall position limit at the Trading Member (TM) level (proprietary + client) shall be the higher of ₹500 crore or 15% of the total Open Interest (OI) in the market.” This updated directive is intended to facilitate better risk management and provide trading members with greater flexibility in managing their positions.

Additionally, it was noted that the new position limits would be applicable separately for index futures and index options, maintaining the current practice.

Background and Rationale:

The decision to raise position limits stems from feedback received from market participants and discussions held in the Secondary Market Advisory Committee (SMAC). The move is expected to bolster trading activity and enhance the overall efficiency of the equity derivatives market.

With this adjustment, SEBI aims to create a more dynamic trading environment, encouraging both institutional and retail participation in the derivatives market.

Conclusion:

The revised position limits reflect SEBI's commitment to fostering a robust trading framework that accommodates the evolving needs of market participants. As the new monitoring mechanism comes into effect in 2025, stakeholders will be better equipped to navigate the complexities of the equity derivatives landscape.