Sebi likely to introduce intraday limits for index options trading
The proposal is being discussed by a regulatory committee, the Secondary Market Advisory Committee (SMAC), on Tuesday. The panel comprises officials from exchanges, depositories and brokerages.
The meeting comes close on the heels of the regulator cracking down on US high frequency trader Jane Street for its alleged manipulation of non-benchmark and benchmark indices such as Nifty and Bank Nifty to make outsized gains in options trades.
Jane Street has been ordered to disgorge nearly ₹ 4,850 crore in alleged illegal gains and has been banned from the Indian securities market until further notice. The firm has disputed Sebi's findings and stated it will engage further with the regulator.
Currently, no participant in index options can exceed a net limit of ₹ 15 billion by the end of day and a gross limit of ₹ 100 billion on any day. However, these limits have been significantly enhanced under Sebi's 29 May circular. The new framework, which became effective 1 July, sets the net end-of-day position limit for index options at ₹ 1,500 crore and gross position limits at ₹ 10,000 crore each for long and short positions.
Many clients take a higher position intraday and ensure their net positions adhere to the ₹ 15 billion end-of-day limit.
The issue, according to two persons aware of the SMAC meeting, is that on a weekly expiry day--Tuesday for Sensex and Thursday for Nifty--clients take higher limits and then since the contract expires, there is no end-of-day limit needed to adhere to.
"To ensure that the EOD limit is adhered to on expiry days as well, we expect Sebi to introduce an intraday net limit and to direct exchanges to ensure that the EOD limits are respected on the expiry days as well," said one of the persons cited above.
Sebi's 29 May circular introduced a comprehensive overhaul of the equity derivatives framework, implementing a Future Equivalent Open Interest (FutEq OI) methodology. This delta-based approach replaces the traditional notional open interest calculation, providing a more accurate assessment of actual risk exposure by considering the price sensitivity of each contract.
The circular also mandated intraday monitoring of market-wide position limits (MWPL) for single stocks, with exchanges required to conduct at least four random checks during trading hours. These new calculations will be based on the lower of 15% of free float or 65 times the average daily delivery value, with implementation beginning 1 October, 2025.
The regulatory tightening comes amid alarming data about retail investor losses in the derivatives segment. A Sebi study last month revealed that individual traders lost ₹ 1.06 lakh crore in FY25, a 41% increase from ₹ 74,812 crore in FY24. Approximately 91% of individual traders in the equity derivatives segment incurred net losses, with the average loss per trader rising to ₹ 1.1 lakh.
Over the past four financial years (FY22-FY25), retail traders have cumulatively lost nearly ₹ 2.87 trillion in equity derivatives, highlighting persistent structural risks in the segment.
Typically, working groups--comprising exchange and broking officials--are created to make certain suggestions that are discussed by SMAC. The panel makes recommendations to Sebi, which passes rules based on them at its board meetings.
Earlier, there was an EOD net limit of ₹ 500 crore but no gross limit. Effective 1 July, Sebi has specified that at no time during the day can a client be in breach of the gross limit of ₹ 10,000 crore.
Now, Sebi plans an intraday net limit to rein in over speculative frenzy, particularly given the concerning pattern of retail investor losses and the need for enhanced oversight during volatile expiry day trading sessions.
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