The Securities and Exchange Board of India (SEBI) will soon take up important deliberations related to index options limit and the fixing of expiry days that hold a lot of importance to a large section of market participants, including stock exchanges and foreign institutional investors (FIIs).
A SEBI committee responsible for advising the regulator on secondary market-related regulations is scheduled to meet on May 7 and will take up these important but pending matters.
“The proposal will be discussed at this panel and feedback etc. received on both key proposals will also be deliberated there, after which SEBI may come up with a final circular,” said a source familiar with the matter.
The panel comprises officials from a wide spectrum of market intermediaries, including exchanges, brokers, industry bodies, and depositories, apart from a government representative as well.
Market participants are eagerly waiting for the finality of proposed gross and intraday Future Equivalent (FutEq) or delta equivalent-based open interest limits. FutEq is calculated by aggregating change in price (delta) associated with the position.
“The key issue is fixing the intraday options limit as various stakeholders, especially the big algo (HFT) traders and FPIs, are seeking very high limits — the demand is ranging from ₹5,000 to ₹15,000 crore,” said another source aware of the development.
The higher limit is being sought so that traders are not penalised in case of a limit breach, added the source.
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The regulator, however, has its own set of concerns. As per a SEBI consultation paper floated on February 24, the existing monitoring mechanism for index options adds long and short notional positions to arrive at a net figure. It allows an entity to hold large long and large short notional positions that effectively net out to zero in notional terms, despite carrying significant net delta risk.
SEBI, in its consultation paper, proposed a net intraday limit of ₹1,000 crore and a gross intraday limit of ₹2,500 crore for index options. Further, a net end-of-the-day (EoD) limit of ₹500 crore and a gross limit of ₹1,500 crore was proposed.
For index futures, SEBI proposed to enhance the EoD limit to ₹1,500 crore from the existing ₹500 crore and ₹2,500 crore for the intraday limit. SEBI had last set the limit in March 2020, and the proposed limit was based on the three-fold rise in index levels and trading volumes.
Incidentally, SEBI proposed these limits based on its study in November 2024 of the top 50 open interest holders’ data, which showed that most top entities for the month of November had net FutEq OI in the ±₹500 crore range, with fewer entities at higher exposures.
SEBI further found that in 1% of instances, entities were carrying significant delta risk of over ₹10,000 crore while staying far below that in net notional terms. SEBI is also expected to analyse the open interest data of April to gain further insights before arriving at a decision.
The other key proposal is related to fixing the derivatives expiry days for exchanges. SEBI, in its March 27 draft circular, proposed that expiry of all equity derivatives contracts of an exchange be uniformly limited to one of either Tuesdays or Thursdays. Every exchange will continue to be allowed one weekly benchmark index options contract on their chosen day — either Tuesday or Thursday. Also, besides benchmark index options, all other equity derivatives contracts expiry will be in the last week of every month on their chosen day, i.e. Tuesday or last Thursday of the month.
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SEBI’s idea is to ensure optimal spacing between expiries across exchanges while avoiding the choice of either the first or the last day of the week as an expiry day. SEBI is of the view that spacing out expiry days through the week reduces concentration risk and provides an opportunity to exchanges to offer product differentiation to the market. Some market participants have suggested a three-day expiry cycle, while a few are of the opinion that the fixing of expiry days should be left to the exchanges and SEBI should not intervene.
SEBI has also proposed that exchanges will have to seek prior approval from the regulator before modifying the expiry days.
An email sent to SEBI seeking comments did not elicit any response till the time of publishing this story.
