SEBI Slated to Introduce Slab-Based Derivatives Limits for Brokers to Curb Market Risk

As per the Moneycontrol reports, the Market regulator SEBI is set to implement slab-based exposure limits for brokers trading in equity derivatives. This move aims to reduce systemic risks by aligning exposure monitoring with delta-adjusted methods, which account for price sensitivity rather than simple notional values.

SEBI’s Move Towards Delta-Adjusted Exposure Limits

The Securities and Exchange Board of India (SEBI) is refining how broker positions in index derivatives are measured. The current notional-based metric will be phased out in favour of delta-adjusted or futures-equivalent (FutEq) measurement. This method reflects actual risk by factoring in how sensitive an option is to changes in the underlying asset’s price.

Under the proposed framework, exposure slabs will be based on the average daily delta-adjusted open interest from the previous quarter. These new hard limits could be categorised as follows: ₹2,000 crore if open interest is below ₹10,000 crore, ₹6,000 crore for ₹10,000 crore-₹30,000 crore range, ₹10,000 crore for ₹30,000 crore-₹50,000 crore, and ₹12,000 crore when open interest exceeds ₹50,000 crore.

Need for Structural Adjustment

This shift stems from concerns around repeated position limit breaches observed in key index contracts during May 2025. Current limits calculate a broker’s exposure using the higher of either total net long or total net short positions, overlooking the actual market risk involved.

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Quarterly Revisions and Enhanced Market Stability

The new rules will come with a provision for quarterly updates in limits, reflecting evolving market open interest. This dynamic cap system will curb excessive concentration in smaller indices and enhance risk management mechanisms across stock exchanges.

Aligning Broker-Level Monitoring with Client Norms

Since May 2025, client-level exposure tracking has shifted to the delta-based method. Market participants have sought consistency by urging SEBI to use the same framework for broker-level calculations. This change is now in progress to foster uniformity in compliance practices.

Conclusion

SEBI’s planned move to implement slab-based, delta-adjusted limits for brokers in derivatives marks a significant reform in managing market risk. By aligning with client-level rules, updating limits quarterly, and addressing prior breaches, this framework is designed to maintain balanced market exposure and reinforce systemic resilience.

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