Sebi likely to recommend intra-day position limits for index derivatives

A top panel of India's markets regulator has recommended capping an entity's intraday equity index derivatives net position at Rs 1500 crore (about $172 million), two sources familiar with the matter said.

The regulator is re-looking at rules for equity derivatives after it temporarily banned US high-frequency trading firm Jane Street from the Indian markets, saying some of its trading strategies were manipulative and left retail investors with losses.

The limit was discussed at a meeting of the regulator's secondary market advisory committee, which suggests rules for the equity market, and has been sent to the regulator's board for a final decision, the sources said.

 

The sources declined to be identified as the matter is not public.

An email query sent to the Securities and Exchange Board of India on Wednesday was not answered.

Reuters reported on Tuesday that the regulatory panel was contemplating intraday limits on derivative positions.

In February, Sebi proposed an intraday limit of Rs 1,000 crore for net index derivative positions but scrapped the plan following opposition from the large market making firms. Sebi then asked exchanges to monitor trading firms' intraday positions.

The regulator's study of trading data showed that on days when index derivatives mature, intraday trading positions surpass the end-of-day regulatory trading limits, making intraday limits "essential", one of the sources said.

An entity's end-of-day net position is capped at Rs 1500 crore and the gross position at Rs 10,000 crore.

The second source said that stock exchanges had sought clarity on the threshold beyond which trades need to be monitored.

"A regulatory set limit will make it clear to exchanges when to initiate penal action," this source said.

For firms found breaching position limits on expiry days, exchanges will levy penalties and report the cases to the regulator, the first source said.

The panel has also recommended stricter limits for trading members to record the activity of connected foreign entities that typically trade through intermediaries, the source said. Reuters could not determine this limit.