SEBI notifies new F&O rules with enhanced Index Position Limit, new way of measuring risk  

SEBI notifies F&O 2.O rules  

Market regulator Securities and Exchange Board of India (SEBI) on Thursday issued new measures for equity Futures & Options (F&O) segment. The key measures notified include new way of open interest measurement in equity F&O segment, linking of market wide position limit (MWPL) with cash volume and free float, intraday monitoring of MWPL in single stocks, enhanced position limits for Index Futures and Index Options.

The important aspect is SEBI has enhanced the Index Options position limit as compared to the proposed limit earlier. The new Net end of day limit for options will be Rs 1,500 crore and gross limit will be Rs 10,000 crore. These limits will be at each PAN level.

Moneycontrol was the first to report on these key changes for the equity derivatives segment on May 9.

The SEBI had floated a consultation paper in February titled ‘Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives’. SEBI has proposed second leg of regulatory changes for equity F&O in the paper and after feedback from stakeholders the circular has been issued. The 9 key changes are:

1.New way of measuring Open Interest (OI)

As per the SEBI circular, the open interest will be measured in terms of Future Equivalent (FutEq) OI or delta based open interest, instead of notional OI. The notional OI is the sum of open interest of futures and options contracts without considering the actual risk. Delta based OI considers the price sensitivity of each contract. Delta based OI will give better picture of risk than the existing notional OI. Open interest means the number of contracts which are Open and not settled in the market. FutEq OI is calculated by aggregating change in price (delta) associated with the position. This will ensure that stocks are not artificially pushed into ban period as against the notional OI. Exchanges have already started sharing data based on FutEq.

2.Linkage of MWPL with cash volume and free float

Market wide position limit (MWPL) will be linked to the cash volume and free float. MWPL is a maximum trading limit set by stock exchanges, to prevent excessive speculation and maintain market integrity on a particular stock. It will be now lower of, 15 per cent of free float and 65 times of cash volume across exchanges. SEBI circular said, “Tying the MWPL to cash market delivery volume will reduce the potential manipulation and better align derivatives risk with the underlying cash market liquidity”. The new definition of MWPL will be effective from October 1, 2025.

3.Position Creation in Single Stocks during ban period

Trades will be allowed in stocks even during ban period if it reduces the risk of the portfolio. SEBI circular said, “subsequent to its entry in the ban period, should result in reduction of FutEq OI on end of day basis. For instance, if delta position is (+10) or say (-10) at the end of day 1, then it could be reduced till 0 by end of day 2”. SEBI said, change in sign of delta value would not be considered an acceptable instance of reduction of delta position. Further, passive increase in FutEq OI on account of movement in the scrip shall not be considered a breach. This will also become effective from October 1, 2025.

4.Intraday monitoring of MWPL utilisation for Single Stocks

SEBI circular says, clearing corporations will perform intraday monitoring of FutEq OI at least four random times during the trading session. Exchanges will take appropriate actions once OI utilization breaches certain limits such as levying Additional Surveillance Margin, monitoring for entity level concentration, additional surveillance checks etc. Breaches to be reported to SEBI on fortnightly surveillance meetings. Exchanges and clearing corporations will display the MWPL utilisation on intraday basis. Stock Exchanges will prepare a joint SOP, in consultation with SEBI, within a month. This will be effective from November 3, 2025.

5.Enhanced position Limits for Index Futures &Options

As per the SEBI circular, Index Options position, Net end of day FutEq OI limit for options will be Rs 1,500 crore and gross FutEq OI will be Rs 10,000 crore. (i.e. neither gross long FutEq OI nor gross short FutEq OI shall exceed Rs 10,000 crore.) These limits will be at each PAN level. SEBI has suggested a glide path for implementation from July 1 till December 5, 2025.

For Index Futures the limits will be category wise like FPI Category I, MFs, Broker (Prop/client) the limit will be higher of 15 per cent of futures OI or Rs 500 crore. Similarly, for category II FPIs (other than individuals, family offices and corporates) the limit will be higher of 10 per cent of OI or Rs 500 crore. These limits will be in addition to cash or stock holdings. hese position limits for index futures would be measured on gross notional basis. This will be effective from July 1, 2025.

Though the limits have been enhanced but exchanges will have a strong monitoring mechanism. Exchanges will prepare a joint SOP, in consultation with SEBI, to strictly monitor intraday positions and trading activities of major participants from the perspective of market integrity and surveillance concerns and take appropriate measures.

6.Eligibility criteria for derivatives on non-benchmark Indices

SEBI has also fixed a new eligibility criterion for F&O on non-bench mark indices. As per the new criteria for derivatives on non-bench mark indices a minimum of 14 constituents will be required. Capping the weightage of top constituent at or below 20 per cent and combined weightage of top three constituent’s at or below 45 per cent has been prescribed. This will be effective from November 3, 2025.

7.Individual Entity Level Position Limits for Single Stocks

For individuals the limit for single stocks has been fixed as 10 per cent of MWPL and a trading limit of 20 per cent has been prescribed for proprietary brokers. For FPIs and brokers over all limit of 30 per cent has been fixed. This will be effective from October 1, 2025.

8.Pre Open session for F&O

Like the cash market there will be Pre-open session for F&O also. SEBI circular said, the pre-open session 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 shall extend to next-month futures contracts as liquidity shifts from one expiry to the other on account of rollover of futures contracts. This will be effective from December 6, 2025.

9. MFs, AIFs Options exposure on FutEq basis

SEBI has suggested that Mutual Funds and Alternative Investment Funds should calculate Options exposure both long and short on FutEq basis.  The respective departments of SEBI will issue seperate circular for this.

SEBI has taken various measures to deal with F&O frenzy in recent past, including reducing the number of weekly option expiries, increase in lot sizes, removing calendar spread benefit on expiry day, upfront collection of premiums from option buyers and intraday monitoring of position limits.