New intraday limits in index options gives better flexibility to traders while ensuring tighter real-time surveillance, say experts

According to the SEBI circular, the regulator has decided to impose clear intraday position limits for each entity trading in index options.

Market participants have welcomed the latest move by the Securities and Exchange Board of India (SEBI) of bringing back intraday limits for index options trading and are of the view that it would provide better flexibility for traders during the day while, at the same time, ensure tighter real-time surveillance.

It will also bring in more discipline, stability and robustness in the equity derivatives segment while benefiting both institutional and retail players, they add.

On Monday, the capital markets regulator announced a comprehensive framework to monitor intraday positions in equity index derivatives, seeking to curb the risks posed by oversized exposures while preserving liquidity and orderly functioning of the market.

"SEBI has introduced a new framework for intraday limits on index options trading, effective October 1, with tighter monitoring to enhance market stability while supporting liquidity providers and market makers. The move comes amidst the oversized intraday positions on expiry days and the recent Jane Street fiasco, which highlighted risks from aggressive trading strategies," says Ajay Garg, CEO, SMC Global Securities.

"These higher thresholds can provide better flexibility for traders during the day while ensuring tighter real-time surveillance," adds Garg.

He further explains that SEBI’s move targets the growing concern of participants building disproportionately large positions, particularly on options expiry days and it seeks to curb excessive speculation, enhance real-time risk management, and reinforce market stability, thereby creating a secure trading environment for retail participants.

“The new end-of-day position limits are expected to improve market liquidity and provide greater flexibility for institutional players,” says Rupak De, Senior Technical Analyst, LKP Securities.

“However, curbs on intraday positioning, along with stricter monitoring and random snapshots, will help enforce discipline and prevent manipulation. While retail traders may not benefit directly, they could gain indirectly from better price discovery and reduced expiry-day volatility, which may help limit sharp negative shocks,” added De.

According to the SEBI circular, the regulator has decided to impose clear intraday position limits for each entity trading in index options. The net intraday position, calculated on a futures-equivalent basis, will be capped at Rs 5,000 crore per entity. The gross intraday position, again on a futures-equivalent basis, will be capped at Rs 10,000 crore, a level that mirrors the existing end-of-day gross limit.

“The SEBI circular on intraday limits for index options trading is a welcome move. By reinforcing robust regulatory practices, SEBI is taking a proactive step toward curbing market volatility. This measure is also expected to encourage more mature and disciplined participation in the markets,” said Arjun Prajapati, Senior Vice President, Asit C Mehta Investment Interrmediates Limited.

With the latest set of regulatory changes, the watchdog aims to ensure that India’s derivatives market, which is one of the largest and most active in the world, continues to grow on a foundation of robust risk management and transparent regulation.

Moneycontrol had reported on August 19 that SEBI is considering the reintroduction of enhanced intraday limits.

“These changes are directed at index derivatives and really put stronger guardrails around the big players who hold large positions,” says Gagan Singla, MD, BlinkX by JM Financial.

“The move improves risk management and makes the overall market more robust. Retail traders will be protected without being impacted. For brokers, the fine-tuning will depend on SOPs from the exchanges, but overall, it’s a good step that strengthens the system,” added Singla.

The new rules, which will take effect from October 1, come against the backdrop of rising concern that some participants have been taking disproportionately large positions, particularly on options expiry days, creating volatility and threatening market integrity.