 |
|
The Securities and Exchange Board of India (Sebi) has significantly increased position limits for trading members (TMs) in index futures and options contracts. This move aims to enhance market liquidity and provide greater flexibility to market participants, particularly institutional investors and large traders, who often operate with substantial capital.
Previously, the cumulative position limit for TMs, encompassing both client and proprietary trades, was capped at Rs 500 crore or 15 percent of the total open interest (OI) in the market, whichever was higher. However, Sebi has now raised this limit to Rs 7,500 crore or 15 percent of the total OI, again taking the higher value. This translates to a fifteenfold increase in the maximum position limit for TMs, representing a substantial shift in the regulatory landscape for index derivatives.
This decision comes after extensive consultations with market participants and deliberations within the Secondary Market Advisory Committee (SMAC). Sebi acknowledges the feedback received and recognizes the need for increased flexibility to cater to the evolving needs of the market. The increased position limits allow larger positions to be held, potentially leading to enhanced market liquidity and potentially more stable price movements.
Furthermore, Sebi has announced a change in the mechanism for monitoring position limits. Effective from April 1, 2025, positions will be monitored based on the total open interest at the end of the previous trading day. This aligns with the current practice in the currency derivatives segment and aims to provide greater transparency and consistency in market monitoring.
This new monitoring system will address the issue of passive breaches of position limits that could occur due to fluctuations in market OI. In scenarios where the market OI drops compared to the previous day, market participants may inadvertently breach the specified limits even if their positions remain unchanged. Under the new system, passive breaches will not be penalized, eliminating the need for unwinding positions in such situations.
Overall, the increase in position limits and the revised monitoring mechanism represent significant steps by Sebi to enhance the efficiency and flexibility of the index derivatives market. The increased limits will provide greater scope for market participants to manage their positions effectively, while the revised monitoring mechanism will ensure a more robust and transparent system for monitoring market activity. These changes are expected to contribute to a more vibrant and dynamic derivatives market in India.
Source: Sebi raises index F&O position limits for trading members by 15x to Rs 7,500 crore