SEBI (Securities and Exchange Board of India) has introduced new risk measures to control the growing speculation in the Futures and Options (F&O) market.
These changes, based on the consultation paper released in February, will impact how open interest is calculated, position limits are set, and expiry rules are applied.
SEBI’s Main Objective
SEBI wants to reduce speculation and stop market manipulation. Experts believe SEBI also aims to cut down the losses faced by retail traders.
Highlights of SEBI’s New Rules
Open Interest (OI) Calculation:
A new delta-based model or future equivalent method will now be used. This links derivative prices with their base security to better track actual positions.
Index Options Limit:
The total gross limit for index options will now be ₹10,000 crores. SEBI had earlier proposed a ₹1,500 crore cap in February’s consultation paper, but increased it after industry feedback.
Market-Wide Position Limit (MWPL) for Single Stock:
MWPL will be set at either 15% of the free float or 65 times the average daily delivery value—whichever is lower.
FPIs and Mutual Funds: Limited to 30% of MWPL
Retail Investors: Limited to a maximum of 10% of MWPL
F&O Expiry Changes:
Expiry will now be allowed only twice a week. Any change to the expiry schedule will need SEBI’s prior approval. This rule will particularly impact newer exchanges like the Metropolitan Stock Exchange.
Intraday Monitoring:
Exchanges will conduct 4 random intraday checks every day. They must also create and follow a Standard Operating Procedure (SOP).
F&O Market Trends
A SEBI survey from 2021 to 2024 shows that 93% of individual traders lost money in F&O trading. While the volume of index options has fallen by 15% annually, it is still 11% higher than in 2022.
Retail trader participation is down 5% per year, but remains 34% higher than 2022 levels.
SEBI aims to control excess trading while maintaining market liquidity. These new rules will reduce speculation and help retail traders better understand their risks.
