Market regulator Securities and Exchange Board of India (Sebi) is reviewing how brokers manage their exposure to index derivatives, after data showed multiple violations of position limits in contracts such as Sensex, Nifty and Bank Nifty, people familiar with the development told Moneycontrol.
To address these concerns, Sebi is considering replacing the “one-size-fits-all hard limit with a slab-based structure that would vary depending on the size of an index”, said one source. The new framework may set limits from the next quarter based on the average daily delta-adjusted open interest of the previous quarter. This method calculates a participant's total exposure in derivatives by weighing each position based on its delta, or an option's sensitivity to changes in underlying asset's price.
For example, if Index Open Interest is below Rs 10,000 crore, the hard cap would be Rs 2,000 crore. If the delta adjusted open interest is more than 10,000 crore but up to 30,000 crore, then the hard limit may be fixed at Rs 6,000 crore, and for a limit up to Rs 50,000 crore the hard limit will be Rs 10,000 crore. For indices with Open Interest above Rs 50,000 crore, the cap could be set at Rs 12,000 crore.
The system is expected to provide more predictability for market participants while reducing the risks of concentrated positions in smaller indices, according to people familiar with the development. The hard limits would also be updated every quarter to reflect changing market activity.
Oner source explained the rationale, “Sebi observed multiple instances of limit breaches in May in key popular index options across exchanges. These breaches highlighted the shortcomings of the current framework, which calculates position limits by simply taking the higher of net long or net short positions of a broker across contracts.”
The regulator has clarified to stakeholders that the position limits of brokers would continue to be higher than the delta-based limits or the hard limit proposed by it.
Sebi is deliberating on these tweaks as it is planning to revamp the position limit framework for brokers in equity derivatives segment by shifting from notional-based monitoring to delta-adjusted limits, a move aimed at better capturing market risk.
An email seeking comments from Sebi, did not elicit any response.
Broker limits are currently measured on a notional basis. But from May 2025, client-level limits shifted to a delta-adjusted or futures-equivalent (FutEq) method. Under this method, each client’s long and short positions are converted into delta-equivalents, then added up at the broker level and compared against the market-wide delta open interest. Market participants have asked that broker-level limits also follow this same method, so the approach is consistent.
In October last year, Sebi, had enhanced the overall position limit for brokers from Rs 500 crore or 15 percent of total market open interest (OI), whichever is higher, to Rs 7,500 crore or 15 percent of total OI in futures and options.
Currently, a broker’s exposure is calculated by adding up all client longs and shorts, and taking the larger as open interest (OI), based on notional value. In May, Sebi changed client-level OI calculation to a Futures Equivalent (FutEq) or delta-adjusted basis, which better reflects risk by factoring in price sensitivity. However, broker-level limits are still notional. Sebi is now considering moving broker limits to the same delta-based method for consistency.
Until April 2025, the position limits in index derivatives were monitored by clearing corporations with strict penalties. After Sebi’s decision to shift monitoring to stock exchanges, the penalty regime has become lighter. Sebi has warned that if the easier calculation method continues, exchanges may need to impose tougher penalties to prevent repeated breaches.
Also read: Sebi turns down ‘anonymous’ RTI for Options data, says it will reveal the ‘mind of the regulator’
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