SEBI re-introduces intraday limits for Index Options trading from October 1, with stricter monitoring

Also Read:  Sebi mulls double-edged move: Higher intraday limits, with expiry-day clampdown and penalties for breach 

The new rules, which will take effect from October 1, 2025, 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.

To enforce the framework, stock exchanges will be required to monitor positions using at least four random snapshots during the trading session. One of these checks must take place between 2:45 pm and 3:30 pm, a time window that often witnesses a flurry of trading as positions are squared off before the close.

SEBI circular read, "For the entities breaching the aforesaid limits, Stock Exchanges shall examine trading patterns of such entities which would inter-alia include seeking rationale for such positions from the clients, examining trading in the constituents of the index by the entity and discussing such instances with SEBI in the surveillance meeting".

SEBI is cautious following the incident involving the alleged manipulation by the Jane Street Group.

At the time of taking these snapshots, exchanges will also need to account for the prevailing price of the underlying index, ensuring that position assessments reflect real market conditions.

SEBI has made it clear that entities breaching these limits will come under increased scrutiny. Stock exchanges will examine the trading patterns of such participants, which may involve calling for explanations, reviewing trades executed in the underlying index constituents, and reporting their findings to SEBI in surveillance meetings. On expiry days, when speculative pressures are at their peak, violations will additionally attract penalties or surveillance deposits, to be determined jointly by the exchanges.

The circular emphasizes that the intent is not to stifle market-making or genuine hedging activity but to strike a balance between convenience and caution. Market makers and liquidity providers will still be able to carry out their roles effectively, as the framework allows additional exposure if backed by securities or cash collateral.

The SEBI circular further noted that, "The aforesaid framework would facilitate market making activity on all trading days while putting a check on creation of outsized intraday position on the expiry day for orderly trading. The aforesaid framework would also provide predictability, operational clarity, and a fair balance between ease of trading and risk management".

The regulator also highlighted that these provisions will be confined strictly to index options, which dominate the derivatives landscape.

SEBI observed that the absence of intraday curbs was allowing entities to build outsized bets, particularly on expiry days, that could destabilize the market.

As part of the implementation roadmap, SEBI has asked stock exchanges and clearing corporations to jointly prepare a standard operating procedure for intraday monitoring. This SOP must be submitted to the regulator within 15 days and communicated to market participants before the new framework is enforced. Market Infrastructure Institutions will also be required to make suitable changes to their systems, processes, and byelaws to support the rules.

The intraday monitoring norms will come into force on October 1, 2025, while the penalty provisions related to expiry-day breaches will apply from December 6, 2025, aligning with the end of the glide path for position limits.