SEBI released this framework to improve risk monitoring and trading convenience in the equity derivatives market, recognizing rising retail participation, growing short-tenure index options, and heavy expiry-day trading volumes. The measures aim to align derivatives activity with underlying cash market liquidity while ensuring market integrity.
Key Measures Introduced
1. Formulation of FutEq Open Interest (OI)
- Open Interest will now be measured as Delta-adjusted net positions across futures and options for each underlying stock/index.
- This calculation, called Future Equivalent OI (FutEq OI), standardizes risk exposure measurement across participants.
2. Market Wide Position Limits (MWPL)
- Redefined as the lower of:
- 15% of free float, or
- 65 times the Average Daily Delivery Value (ADDV),
with a floor of 10% of free float.
- MWPL will be recalculated every quarter to align with liquidity in the cash market.
3. Ban Period Trading in Single Stocks
- When MWPL breaches 95%, only position reduction is allowed.
- New rules require actual end-of-day delta reduction during the ban period, disallowing offsetting trades that maintain net exposure.
4. Intraday MWPL Monitoring
- Exchanges must monitor MWPL utilization at least four random times daily, taking actions like Additional Surveillance Margins or concentration checks when limits are approached.
- Significant breaches must be reported to SEBI in surveillance meetings.
5. Position Limits for Index Derivatives
- Index Options: PAN-level cap of ₹1,500 crore net FutEq OI and ₹10,000 crore gross.
- Index Futures: Position limits vary by participant type:
- FPI Cat I/Mutual Funds/Proprietary Traders: Higher of 15% OI or ₹500 crore.
- FPI Cat II (Institutions): Higher of 10% OI or ₹500 crore.
- FPI Cat II (Individuals/Family Offices/Corporates): Higher of 5% OI or ₹500 crore.
- Entities can take additional exposure only if backed by equivalent securities (for shorts) or cash/G-Secs (for longs).
- A glide path until December 2025 allows one-day flexibility to adjust positions, after which same-day compliance becomes mandatory.
6. Pre-open Session
- Extended to current-month futures (single stock and index).
- In last five days before expiry, also applicable to next-month futures to smooth rollovers.
7. Eligibility for Non-Benchmark Index Derivatives
- New prudential criteria: at least 14 constituents, top stock ≤20% weight, top 3 ≤45%, and descending weight structure.
- Compliance will be reviewed quarterly.
8. Entity-Level Position Limits for Single Stocks
- Recalibrated to new MWPL definition:
- Client/NRI: 10% of MWPL
- Proprietary Trader: 20%
- Trading Member/Mutual Fund/FPI Cat I: 30%
- FPI Cat II Institutions: 20%
- FPI Cat II Individuals/Corporates: 10%
- Exchanges must jointly monitor outsized exposures that may affect stability.
Implementation Timeline
- FutEq OI formulation: Already in place.
- MWPL changes, ban-period norms, entity limits: October 1, 2025.
- Intraday MWPL monitoring and non-benchmark index criteria: November 3, 2025.
- Index futures limits: July 1, 2025.
- Index options limits: Glide path from July 1 to Dec 5, 2025; full implementation Dec 6, 2025.
- Pre-open sessions: Dec 6, 2025.
Conclusion
SEBI’s circular marks a major overhaul of India’s equity derivatives framework. By linking derivatives activity to cash market depth, tightening monitoring, and setting entity-level checks, it aims to improve transparency, curb manipulation risks, and safeguard investors while allowing meaningful trading opportunities
