Sebi tightens norms for intraday position limits in index options

Also mandates regular monitoring by exchanges to check for breaches

The Securities and Exchange Board of India (Sebi) has introduced a stricter framework to regulate intraday position limits in index options, aiming to curb speculation and potential market manipulation.

 

Effective October 1, the intraday net position limit will be capped at ₹5,000 crore per entity on a futures equivalent basis. Previously, traders were only required to comply with an end-of-day limit of ₹1,500 crore, allowing unrestricted intraday positions.

 

Additionally, the intraday gross position limit remains at ₹10,000 crore per entity, separately for long and short positions — a measure Sebi had introduced from July 1.

 

The transition to a delta-based or futures equivalent open interest calculation was implemented via a circular in May.

 

 

This enhanced regulatory framework follows Sebi’s recent crackdown on Jane Street Group over alleged manipulation of the Bank Nifty index.

 

The newly-imposed limits are expected to temper trading activity, particularly among institutional players and proprietary trading desks.

 

To ensure compliance, Sebi has mandated stock exchanges to monitor these intraday limits through at least four random position snapshots during trading day. Notably, one snapshot must occur near market close, between 2:45 pm and 3:30 pm, when trading volumes typically peak.

 

Exchanges are also required to factor in underlying asset prices when capturing these snapshots.

 

Sneha Seth, derivatives research analyst at Angel Broking, said, “For retail clients, Sebi’s move to tighten intraday position limits in index options, especially on expiry days, should reduce volatility. It should prevent wild price swings, creating a safer and more controlled trading environment.”

 

She further noted that while speculative opportunities might be constrained and liquidity could see a modest dip due to reduced participation from large players, the measures ultimately protect small traders from outsized risks and abrupt intraday market moves.

 

Another senior derivatives analyst highlighted that the changes would shift the market focus towards automation and hedging strategies. It would encourage more calculated risk-taking and longer-term positions rather than pure speculation.

 

Earlier plans to impose intraday limits had been shelved. But considering recent instances of outsized intraday futures equivalent (FutEq) positions around contract expiries and associated market integrity risks, Sebi reopened the discussion.

 

“On the basis of observed instances of outsized intraday FutEq positions created by certain entities in index options on the day of contract expiry and the risks to market integrity thereof, discussions were held with stock exchanges to strengthen the intraday monitoring framework for index options,” noted Sebi in a circular.

 

The regulator emphasised that these measures intend to stabilise the market while enabling participation by liquidity providers and market makers.

 

Dhiraj Relli, managing director and chief executive officer, HDFC Securities, said the new framework is not about curtailing trading activity but ensuring orderly markets.

 

The new limits, he said, provide enough room for genuine trading and liquidity provision. As a result, the impact on volumes may not be very material.

 

Penalties or additional surveillance deposits will be imposed for breaches of position limits on expiry days, effective from December 6, with stock exchanges determining the penalty framework.

 

The bourses will also review trading patterns of entities exceeding limits and require explanations for such positions.

 

Exchanges and clearing corporations are expected to issue a standard operating procedure for intraday monitoring within 15 days.

 

Rupak De, senior technical analyst at LKP Securities, said stricter intraday monitoring on expiry days will enhance market oversight. It would also curb manipulative practices, and improve price discovery, thereby reducing volatility on these critical days. 

New rules of the game

 

• Entity-level intraday net position limits at ₹5,000 crore, effective Oct 1
• At present, no cap on intraday limits
• Gross position limits unchanged at ₹10,000 crore
• Calculations to be done on a future equivalent (FutEq) basis as opposed to notional turnover
• Stock exchanges to monitor these intraday limits
• To carry out minimum of four random snapshots, mainly during the heightened activity period between 2.45 pm and 3.30 pm
• Breaches to attract penalties starting December