Stricter F&O rules from October 1: MWPL linked to cash, single stock position during ban, intraday monitoring of options

Linkage of MWPL to cash, Intraday monitoring of positions and many more changes in F&O, effective from October 1

Starting October 1, several changes related to equity derivatives will take effect, primarily aimed at stricter regulation and risk management, including a new definition of market-wide position limit (MWPL), position in a stock during the ban period, intraday monitoring of position limits in index options, and individual entity level position limits for single stocks.

MWPL Linked with Cash Volume and Free Float

The market-wide position limit or the maximum number of bets allowed will now be linked to the cash volume and free float of the scrip, to curb excessive concentration of positions, and has been fixed as the lower of 15 percent of free float or 65 times of cash volume across exchanges.

The current MWPL formula is based on the 20 percent of the shares held by non-promoters in a scrip. This metric will be recalculated every three months, based on the rolling cash volume for the preceding three-month period. Sebi expects that by tying the MWPL to cash market delivery volume, it may reduce the risk of manipulation and better-align derivatives risk with underlying cash market liquidity.

Position in Single Stocks during Ban Period

Also, from October 1, 2025, trades will be allowed in F&O stocks even during the ban period if it reduces the risk of portfolio. Sebi said that subsequent to a scrip’s entry in the ban period, it should result in reduction of FutEq OI on end of day basis. Currently, if stocks enter the ban period, no fresh positions can be created. Once the market-wide Open Interest for any share exceeds 95 percent of the MWPL for the scrip, brokers and traders can trade only to decrease their positions through offsetting positions.

Intraday Monitoring of Position Limits

To curb oversized exposures in index derivatives, net intraday positions will be capped at Rs 5,000 crore per entity and gross intraday positions at Rs 10,000 crore. Exchanges will monitor positions through at least four random snapshots during the trading session. On expiry days, breaches will attract penalties or surveillance deposits, though additional exposures will be allowed if fully backed by securities or cash collateral. Penalty provisions for expiry-day breaches will apply from December 6, 2025.

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Individual Entity Level Position Limits

Effective October 1, new position limits for single-stock derivatives have been introduced at 10 percent of the market-wide position limit (MWPL) for individuals, 20 percent for proprietary brokers, and 30 percent overall for FPIs and brokers.

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Aside of these measures, announced in May 2025, Sebi has also said that additional steps will be rolled out in phases. From November 3, 2025, new eligibility norms will apply to derivatives on non-benchmark indices. Also, from December 6, 2025, pre-open and post-closing sessions will be introduced for the F&O segment too.

These measures are part of the regulator’s broader push to curb excessive speculation and strengthen market stability in the F&O segment. The measures follow a May 2025 circular, some of which came into effect from July, with the rest now being rolled out in phases.

In recent years, Sebi has acted to cool down speculative activity by reducing the number of weekly expiries, increasing lot sizes, removing calendar spread benefits on expiry days, mandating upfront premium collection from option buyers, and tightening intraday monitoring.