SEBI Plans Major Changes in F&O Rules to Ease Trading and Improve Risk Monitoring

The Securities and Exchange Board of India (SEBI) is planning to introduce significant reforms in the Futures and Options (F&O) market. A panel set up by SEBI has cleared 9 major proposals that are expected to simplify trading, ease position limits, and improve risk tracking. These changes will benefit traders, brokers, and investors by making the system more flexible and transparent.

New Way to Measure Open Interest

SEBI will now track Open Interest (OI) using a new method called FutEq or delta-based OI. This method takes into account the sensitivity of options and futures to price changes, giving a more accurate view of risk. Unlike the current notional value method, the new formula adds up adjusted positions across F&O contracts, offering a clearer picture of actual market exposure.

Higher Limits for Index Options

In a big relief to traders, SEBI will increase the position limits for index options.

• End-of-Day (EoD) limit: ₹1,500 crore
• Gross position limit (long + short): ₹10,000 crore

Earlier, SEBI had proposed much lower limits— ₹500 crore and ₹1,500 crore respectively. The new limits reflect feedback from market participants who wanted better flexibility while still maintaining stability.

No Intraday Monitoring of Index Option Positions

SEBI has decided not to monitor intraday index option positions. This comes as a relief to market makers who said constant monitoring would disturb liquidity and increase operational issues. Instead, exchanges will design a joint standard operating procedure to keep an eye on large positions for surveillance.

Flexible Rules for Index Futures

For index futures, SEBI will allow broader limits, since they are seen as less risky than options. Depending on the type of investor (like FPIs or mutual funds), limits will be based on a mix of fixed amounts and a percentage of market Open Interest.

 For example:

• FPI Category I and MFs: Higher of ₹500 crore or 15% of total OI
• FPI Category II (others): Higher of ₹500 crore or 10% of total OI
• FPI Category II (individuals/corporates): Higher of ₹500 crore or 5% of total OI

Market-Wide Position Limits (MWPL) Linked to Cash Volume

SEBI will also tweak how MWPL is calculated for stocks. It will now be based on the lower of:

• 15% of free float
• 65 times average daily cash volume

With a minimum floor of 10% of free float. This move is expected to reduce stock ban events in the derivatives market.

New Rules for Stocks in Ban Period

Traders may now be allowed to take positions in stocks under the ban period—but only if it helps reduce overall risk in their portfolio. The final position must be lower than the starting position to qualify. Clearing corporations will track and penalise violations.

Ban to Begin a Day After Limit Breach

Stocks will now enter the ban list a day after the MWPL breach. This gives traders time to adjust. Exchanges will monitor open interest randomly during the day and report breaches fortnightly.

Criteria for Non-Benchmark Indices Revised

SEBI has revised rules for allowing F&O trading on non-benchmark indices. New rules include:

• Minimum 14 stocks in the index
• Top stock’s weight capped at 20%
• Top 3 stocks’ combined weight not more than 45%

Conclusion

These reforms are aimed at balancing market growth with risk management. SEBI clarified that these measures are not enforcement tools but are designed to improve transparency and reduce the chance of manipulation. The new rules will be rolled out gradually to help the market adapt. 
 
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