MC EXCLUSIVE Rs 35,000 crore structured products at risk if SEBI says ‘No’

As per industry estimates, the structured product market is expanding by Rs 6,000–7,000 crore annually, fueled by investor appetite for market-linked returns in a low-yield environment.

The Rs 35,000 crore structured product market is bracing for a regulatory shakeup, with market participants urging the Securities and Exchange Board of India (SEBI) to exempt such instruments from new position limits on index derivatives.

Structured products—complex investments combining equity and debt with embedded derivatives—are typically marketed to high-net-worth individuals, with ticket sizes of Rs 1 crore and above. As SEBI readies a circular detailing index futures and options exposure caps, issuers fear they may be forced into abrupt unwinding of positions, potentially roiling markets.

“Representations have been made to SEBI requesting that structured products be exempted from long delta end-of-day position limits,” said a person familiar with the discussions.

The industry has also pushed for structured products to be recognised as a separate category, allowing unrestricted positions for hedging.

Also read: Big relief on Index Options position limit likely, key SEBI panel approves F&O 2.0 regulations

Structured product issuers typically hedge their obligations in the F&O market. Any cap on derivative exposure, they argue, would impair their ability to manage risk, especially when underlying benchmark-linked obligations mature.

Exchanges have begun collecting data from issuers to better understand the impact, sources said. Issuers also referenced a March 2020 SEBI circular that allowed unlimited long-side hedges in certain contexts—arguing for continuity in policy.

“Structured product issuers actually help absorb volatility. They buy on weak days and sell into strength,” said another person close to the matter. “That provides a stabilising effect.”

As per industry estimates, the structured product market is expanding by Rs 6,000–7,000 crore annually, fueled by investor appetite for market-linked returns in a low-yield environment.

While SEBI hasn’t responded mails sent by Moneycontrol, a circular is expected soon. Sources indicate the revised gross position limit may be set at Rs 10,000 crore and end-of-day at Rs 1,500 crore on a futures-equivalent open interest basis. And, there will be no intra day limit as proposed earlier but strict monitoring of positions by exchanges is expected to address the concerns of market manipulation.

For index futures, limits may be pegged to a certain percentage of open interest based on category of investors or Rs 500 crore—whichever is higher. For brokers, the overall cap including proprietary and client positions may be 15% of OI or Rs 7,500 crore.

These thresholds are significantly higher than those outlined in an earlier consultation paper, indicating regulatory accommodation—though whether that will extend to structured products remains unclear.

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