The Securities and Exchange Board of India (SEBI) will soon discuss two important matters related to the futures and options (F&O) market. These are the index options limit and deciding a fixed expiry day for derivative contracts. A key committee of SEBI will meet on May 7 to take a final view on these topics, which are important for traders, stock exchanges, and foreign investors.
One big proposal under review is about setting intraday and end-of-day limits for index options. Currently, traders can hold both long and short positions that balance out on paper but still carry big risks. SEBI wants to fix this by putting strict limits based on actual risk (delta). In its February 24 consultation paper, SEBI suggested:
- Intraday net limit of Rs 1,000 crore and gross limit of Rs 2,500 crore
- End-of-day net limit of Rs 500 crore and gross limit of Rs 1,500 crore
For index futures, SEBI wants to raise the limits to match today’s higher trading volumes. The end-of-day limit may be increased to Rs 1,500 crore and intraday limit to Rs 2,500 crore.
But high-frequency traders (HFTs) and foreigners want much larger limits—some are demanding as much as Rs 15,000 crore—so that they are not penalized if limits are exceeded.
SEBI earlier considered data from November 2024 and reported that a majority of the large traders were in a range of Rs 500 crores net, but 1% of cases reported delta risks of over Rs 10,000 crores. SEBI will also review April data before making a final determination.
Another proposal put forward is to align a common expiry date for weekly and monthly derivative contracts. SEBI would like exchanges to choose between Tuesday or Thursday to set weekly benchmark index option expiries. All other derivative contracts would expire in the fourth week of a month on this selected day.
SEBI feels this would reduce too many contracts expiring together on a single day and provide increased spacing of expiries. Some players, though, desire greater freedom, such as having three days of expiries or making such a choice a matter of exchange discretion.
Exchanges would require prior approval from SEBI if finalized, prior to altering expiry dates.
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Source: Moneycontrol.
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