SEBI likely to raise intraday gross limit in index options, unlikely to meet international body's demand on EOD limit: Sources

Sources now say that SEBI has taken industry inputs into consideration and is therefore considering raising the gross limit significantly.

The market regulator is likely to revise the proposed intraday gross future-equivalent (FutEq) or delta-based open interest (OI) limits, which has been the big ask by various industry participants so far. Any increase in the end of day (EOD) delta-based limit may not be as high as has been sought by some, including an international industry body, said sources.

The Futures Industry Association (FIA), representing the interests of a wide range of industry participants including large hedge funds such as Jane Street and Citadel, have asked for an increase in EOD net index future equivalent limits to Rs 7,500 crore.

On February 24, the Securities and Exchange Board of India (SEBI) floated a consultation paper titled "Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives". In a conversation with Moneycontrol, the regulator's whole-time member Ananth Narayan had explained the intent behind the paper, which was to improve market disclosure, reduce spurious ban periods of individual stocks, and to track individual positions and concentrations better in index derivatives. These would help with better risk management and address risks and concerns of any market manipulation, he had said.

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Following the paper's release, there have been a lot of discussions on the proposed gross and intraday delta-based limits. The paper proposed monitoring of intraday delta-based OI and setting the intraday gross delta-based limit at Rs 2,500 crore. In conversations with Moneycontrol, some market players had asked for this limit to be doubled and others had asked for it to be raised three- or fourfold.

Sources now say that SEBI has taken these inputs into consideration.

"The feedback on the paper has largely been positive but there are some valid concerns around the gross delta-based limits. Industry players have presented to the regulator the constraints this would place on them and how their legitimate businesses would be affected by them," said a person close to the developments. "Therefore, SEBI will likely consider raising this limit."

On raising EOD net limit

The regulator is unlikely to raise the EOD net limit to Rs 7,500 crore, sources said, and fund managers welcomed it saying that raising it to the level demanded by FIA would have left the market vulnerable to manipulation.

"In the consultation paper, the regulator had pointed out how only a few players had more than Rs 10,000 crore net delta-based OI. These entities may be the ones who have raised their demand through FIA. I don't know of any entity in India that would be comfortable carrying this kind of risk," said Mayank Bansal, a leading options trader. The consultation paper had shared analysis of trading positions (calculated based on net delta-based or FutEq OI) held by the top 50 players in November 2024. The analysis showed that in 89 percent of the instances the OI was below 500 cr and only in one percent of the instances, the net delta-based OI was above Rs 10,000 crore.

"It is such positions that raise concerns of market manipulation, particularly violent manipulation, wherein you accumulate large derivatives positions to benefit from a move on one side and then move the market using synthetic forwards/ deep ITM (in-the-money) options ," Bansal said.

A source close to the developments told Moneycontrol, "While finalising new limits for index derivatives, SEBI will balance between meeting the interests of participants and the need to maintain market trust and stability.”