SEBI tightens risk monitoring of equity derivatives in second phase of F&O reforms

SEBI has set out a phased timeline for the eight measures by December 6
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ANI

The Securities and Exchange Board of India (SEBI) has issued a slew of measures to strengthen risk monitoring of equity derivatives, including a delta-based ‘future equivalent’ open interest, and revised position limits for index options and futures.

The measures aim to better align risk metrics in the derivatives segment with actual market exposure, prevent any potential manipulation, and weed out instances of a scrip going into the ban period without any extensive build-up of risk.

The future equivalent or delta-based approach calculates open interest taking into account the price sensitivity of each contract to the underlying, unlike the current method of adding up the notional value of all outstanding contracts held by participants.

SEBI has set out a phased timeline for the eight measures by December 6.

Revised position limits

This new method comes with end-of-day index derivatives open interest (OI) limits, which have been revised from the initial proposals in a move towards tighter surveillance rather than setting hard limits and stifling market making.

SEBI has raised the limit on gross options positions traders can hold to ₹10,000 crore from the ₹1,500 crore it had earlier proposed. Net options positions have been set at ₹1,500 crore, compared to the proposed ₹500 crore.

These position limits for index options will be fully implemented by December 6, following a glide path implementation from July 1 till December 5. Currently, there is a net limit of ₹500 crore and no gross limit on positions.

For index futures, the limits will be based on categories. The limit will be higher of 15 percent of futures OI or ₹500 crore for FPI category I, mutual funds, and brokers. For category II FPIs other than individuals, family offices and corporates, the limit will be higher of 10 per cent of OI or ₹500 crore. This will be effective from July 1, 2025.

MWPL tweaked

SEBI has also tweaked the market wide position limit (MWPL) for single stocks to the minimum of 15 percent of free float or 65 times the average daily delivery volumes (ADDV) across exchanges with a floor of 10 percent of free float.

The limit for single stocks has been fixed as 10 percent of MWPL for individuals and a trading limit of 20 percent has been prescribed for proprietary brokers. For FPIs and brokers, overall limit of 30 percent has been fixed. Trades will also be allowed in stocks during the ban period if it reduces the risk of the portfolio. These rules and the definition will be effective from October 1, 2025.

Further, stock exchanges will now monitor MWPL usage not just at the end of the day but at least four times a day at random intervals from November 3, 2025.

SEBI has also fixed a new eligibility criterion for F&O on non-benchmark indices effective November 3. A minimum of 14 constituents will be required as per the new criteria, and the weightage of top constituents at or below 20 per cent will be capped.

Published on May 29, 2025