Sebi Derivatives Rules: New Oversight Measures
- MUMBAI – The Securities and Exchange Board of India (Sebi) is implementing new regulations aimed at strengthening its supervision of the equity derivatives market.
- A key change involves a new method for measuring traders' positions: Futures Equivalent Open Interest.
- Sebi is also modifying how trading limits are set for single-stock derivatives.
Sebi is overhauling equity derivatives market oversight with new measures designed to reduce speculation. These changes, impacting open interest calculations and trading limits, will directly affect how you operate within the market. A pivotal shift introduces the Futures Equivalent Open Interest method, replacing the current ‘notional value’ approach for a more accurate risk assessment. Single-stock derivative limits are also being revised, linking Market Wide Position Limits (MWPL) to cash market activity to prevent manipulation. Moreover, stricter rules around the F&O ban mechanism and an index option exposure cap, effective July 1, 2025, are coming. Staying informed is crucial as News Directory 3 helps to inform; these moves indicate a proactive stance by the regulator. Discover what’s next for your trading strategy.
Sebi Tightens Equity Derivatives Market Oversight
MUMBAI – The Securities and Exchange Board of India (Sebi) is implementing new regulations aimed at strengthening its supervision of the equity derivatives market. These changes address open interest calculation, position limits relative to cash market liquidity, and monitoring of large positions in index options and single-stock derivatives. The goal is to reduce excessive speculation.
A key change involves a new method for measuring traders’ positions: Futures Equivalent Open Interest. This approach assesses a derivative position’s sensitivity to underlying asset movements, providing a more precise gauge of market risk. It will replace the current ‘notional value’ method with a ‘delta-based’ model.
Sebi is also modifying how trading limits are set for single-stock derivatives. The new rules more closely link Market Wide Position Limits (MWPL) in single stock derivatives to the stock’s trading activity in the cash market. This aims to curb manipulation in less liquid stocks.
The current method assigns full notional value even to options far from being exercised, artificially inflating the MWPL and possibly pushing stocks into F&O ban periods.
Sebi stated that tying the MWPL to cash market delivery volume will reduce potential manipulation and better align derivatives risk with underlying cash market liquidity.
The regulator is also tightening rules around the F&O ban mechanism. Once a stock is in the ban, any derivatives trading must reduce the trader’s overall exposure by day’s end. Clearing corporations will penalize violations.
Starting July 1, 2025, index option exposure will be capped at ₹1,500 crore net and ₹10,000 crore gross per entity. Index futures limits will vary based on market participant type. Passive breaches caused by overall market open interest declines will not be considered violations.
Sebi has extended the pre-open session to include current-month futures on stocks and indices. During the last five trading days of expiry, this window will also include next-month contracts to facilitate smoother rollovers.
What’s next
Market participants should prepare for the implementation of these new rules, which are designed to enhance market stability and reduce the potential for manipulation in the equity derivatives market.