SEBI May Raise Intraday Limit in Index Options, Unlikely to Meet EOD Cap Demand: Sources

The market regulator is expected to revise the proposed intraday gross future-equivalent (FutEq) or delta-based open interest (OI) limits, a key demand from various industry stakeholders. However, sources indicate that any increase in the end-of-day (EOD) delta-based limit may not be as substantial as some, including an international industry association, have requested.

The Futures Industry Association (FIA), which represents a diverse group of industry participants, including major hedge funds like Jane Street and Citadel, has advocated for raising the EOD net index future-equivalent limits to ₹7,500 crore.

On February 24, the Securities and Exchange Board of India (SEBI) released a consultation paper titled "Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives." In an interaction with Moneycontrol, SEBI’s whole-time member, Ananth Narayan, elaborated on the paper’s objective—to enhance market transparency, minimize unwarranted stock ban periods, and improve the tracking of individual positions and concentrations in index derivatives. These measures aim to bolster risk management and mitigate potential market manipulation concerns, he explained.

Since the release of the consultation paper, discussions have intensified around the proposed gross and intraday delta-based limits. The paper suggested implementing an intraday delta-based OI monitoring mechanism and capping the intraday gross delta-based limit at ₹2,500 crore. Industry participants, in conversations with Moneycontrol, have proposed doubling this limit, while others have called for an even higher increase—up to three or four times the suggested cap.

Sources now suggest that SEBI has taken these inputs into account.

"The feedback on the paper has generally been positive, though valid concerns remain regarding the gross delta-based limits. Industry players have highlighted the operational constraints these limits could impose and the potential impact on their legitimate business activities," said a source familiar with the matter. "As a result, SEBI is likely to consider increasing this limit."

Consideration of the EOD Net Limit

However, sources indicate that SEBI is unlikely to raise the EOD net limit to ₹7,500 crore. Fund managers have welcomed this decision, arguing that raising the limit to the level sought by FIA could expose the market to risks of manipulation.

"The consultation paper pointed out that only a handful of participants had a net delta-based OI exceeding ₹10,000 crore. It is possible that these entities, through FIA, have pushed for this increase. I am not aware of any domestic entity comfortable with carrying such a significant risk," said Mayank Bansal, a prominent options trader.

The consultation paper had analyzed trading positions—measured in net delta-based or FutEq OI—held by the top 50 participants in November 2024. The findings revealed that in 89% of cases, the OI was below ₹500 crore, while only 1% of instances exceeded ₹10,000 crore.

"Such large positions raise concerns about potential market manipulation, particularly aggressive tactics where traders accumulate substantial derivatives positions to exploit a directional move, then use synthetic forwards or deep in-the-money (ITM) options to influence the market," Bansal explained.

A source close to the discussions told Moneycontrol, "In finalizing new limits for index derivatives, SEBI aims to strike a balance between accommodating market participants and preserving overall market integrity and stability."