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Business Standard
30-05-2025
- Business
- Business Standard
SEBI overhauls F&O regulations to boost risk monitoring and market alignment
The Securities and Exchange Board of India (SEBI) has issued a comprehensive circular introducing sweeping changes to the regulatory framework of the equity derivatives market. The new measures aim to strengthen risk controls, improve alignment with the cash market, and ensure fair and orderly participation across all market participants. One of the most significant changes is the recalibration of the Market Wide Position Limit (MWPL). Until now, MWPL was based solely on a stock's free float. The revised structure introduces a dual benchmark: the lower of 15% of free float or 65 times the average daily delivery value (ADDV), with a minimum floor of 10% of free float. This shift is designed to make position limits more reflective of actual trading activity and to reduce unwarranted F&O bans. SEBI has also refined how open interest is calculated. Instead of simply counting notional positions, the new framework will measure open interest using a Delta-adjusted Future Equivalent (FutEq) approach. This offers a more risk-sensitive metric by adjusting each position based on its sensitivity to the underlying asset's price movements. In a bid to discourage speculative pressure during F&O ban periods, SEBI now mandates that any positions taken after a stock enters a ban must result in a net reduction of delta-based open interest. Exchanges and clearing corporations will track these delta positions daily, with specific guidelines on what constitutes an acceptable reduction. To further curb systemic risk, exchanges must monitor MWPL usage intraday at least four random times per session. This real-time surveillance will help detect sudden build-ups in positions and trigger early warning systems, including additional surveillance margins or scrutiny of participant-level concentration. SEBI has also increased position limits in index derivatives. For index options, the net end-of-day FutEq position is capped at Rs 1,500 crore, while gross long and short positions cannot exceed Rs 10,000 crore each. These limits will be phased in from July to December 2025, allowing institutions to adjust their systems for delta monitoring. Index futures now come with tiered position limits based on participant type, such as FPI Category I, mutual funds, or trading members. Limits are calculated as the higher of a specified percentage of market-wide open interest or a fixed rupee amount, ensuring flexibility for different types of investors. Another key reform is the introduction of a pre-open session in the derivatives market, aligned with the cash market structure. This will initially cover current-month futures and extend to next-month contracts during the rollover week, supporting better price discovery and transition between expiries. To prevent index manipulation, SEBI has tightened eligibility criteria for launching derivatives on non-benchmark indices. Requirements now include a minimum of 14 constituents, caps on the weight of top stocks, and a descending order of constituent weights to ensure balanced representation. Entity-level position limits for single stocks have also been revised, now linked directly to the recalibrated MWPL. This recalibration applies different thresholds for clients, proprietary trading members, mutual funds, and various FPI categories. Exchanges will develop new monitoring frameworks to flag excessive concentration or risk from large positions. All these changes will be phased in between July and December 2025. The circular mandates exchanges and clearing corporations to update their rules, systems, and standard operating procedures (SOPs) in line with the new framework. With these reforms, SEBI intends to create a derivatives market that is more transparent, tightly supervised, and better aligned with the real economy, without curbing genuine risk management or price discovery.
NDTV
29-05-2025
- Business
- NDTV
SEBI Tightens Risk Monitoring In Equity Derivatives With New Measures
New Delhi: Markets regulator Sebi on Thursday came out with a series of measures to strengthen risk monitoring in equity derivatives, including the intra-day monitoring of market-wide position on single stock derivatives. As part of the new measures, exchanges will conduct intraday monitoring of Market-Wide Position Limit (MWPL) utilisation at a minimum of four random intervals during the trading day, Sebi said in its circular. Additionally, the regulator has introduced new eligibility criteria for derivatives on non-benchmark indices and revised individual entity-level position limits based on the updated MWPL framework. These measures will be implemented in a phased manner beginning October 1, the Securities and Exchange Board of India (Sebi) said. The regulator noted that the derivatives market enables efficient price discovery, improved market liquidity and permits investors to manage risk. Stock exchanges and Clearing Corporations (CCs) together provide the platform and products for trading in the derivatives market, while ensuring online real-time risk management, adequate surveillance, as well as smooth settlement of trades. "The role of product offering, risk management, and surveillance by stock exchanges and clearing corporations is crucial in ensuring the integrity of the securities market ecosystem. This is specifically pertinent in view of the evolving market dynamics in the derivatives segment in recent years, with increased retail participation, offering of short tenure index options contracts, and heightened trading volumes in index derivatives on expiry day," Sebi said. To limit settlement risk from intraday spikes in future equivalent (FutEq) open interest (OI) limits, Sebi asked exchanges to perform intraday monitoring of MWPL utilisation at least four random times during the trading session to take appropriate actions once OI utilisation breaches certain limits such as levying additional surveillance margin, monitoring for entity-level concentration and additional surveillance checks. Additionally, exchanges have been asked to report instances of significant utilisation of MWPL or breach of MWPL to Sebi in the fortnightly surveillance meeting. The regulator has set eligibility criteria for derivatives on non-benchmark indices, mandating that such indices must have a minimum of 14 constituents, with the weight of the top constituent not exceeding 20 per cent and the combined weight of the top three constituents not exceeding 45 per cent. Additionally, the constituent weights must follow a descending order. Stock exchanges are required to verify compliance with these criteria at the end of every calendar quarter. Furthermore, exchanges need to submit proposals for such indices with derivative contracts to Sebi within 30 days. With regards to individual entity-level position limits for single stocks, Sebi has recalibrated limits based on the new Market Wide Position Limit definition. Under this, clients and NRIs are allowed up to 10 per cent of MWPL, trading members (proprietary) up to 20 per cent and trading members (proprietary + client), FPIs (Category I), and mutual funds up to 30 per cent. For FPIs under Category II, those other than individuals, family offices, and corporates are allowed 20 per cent, while the sub-category comprising individuals, family offices, and corporates is limited to 10 per cent. Exchanges and Clearing Corporations (CCs) are required to prepare a joint Standard Operating Procedure (SOP) with Sebi to monitor significant open interest (OI) concentration and take necessary measures when needed. Regarding pre-open session, Sebi said such sessions will be extended to current-month futures contracts on both single stocks and indices, mirroring the modalities of the cash market's pre-open and post-closing sessions. In the last five trading days before expiry, these sessions will be extended to next-month futures contracts as liquidity shifts from one expiry to the other on account of the rollover of futures contracts.
