Mraket regulator SEBI has increased the overall position limit at the trading member level across client and proprietary trades in index futures and options to ₹7,500 crore, or 15 per cent of total open interest (OI) in the market.
Until now, the overall position limit at the trading member level (proprietary and client) was set at ₹500 crore.
“Based on the feedback received from market participants, the deliberations held in the Secondary Market Advisory Committee (SMAC) and further internal discussions, the position limits for TMs, cumulatively for client and proprietary trades, in index Futures and Options contracts may be set at higher of ₹7,500 crore or 15 per cent of the total OI in the market. As per the extant practice, the position limits will be applicable for index futures and index options separately,” SEBI said in a circular.
Noting that the open interest of both the participants and the market is dynamic and changing throughout the day, Sebi said that the positions of market participants in the equity derivatives segment will now be monitored based on total open interest of the market at the end of previous day’s trade.
“In case of a drop in market OI compared to the previous day’s market OI, market participants may breach the specified position limits even if their positions have remained unchanged throughout the day. For such cases of passive breaches, market participants would not be penalised and not be required to unwind their positions,” the regulator said.
Brokers had raised concerns over the new rules governing F&O trading. Monitoring of position limits intra-day as opposed to end-of-day may impact proprietary trading desks, high-frequency traders and foreign portfolio investors (FPIs).
Currently, position limits are specified by SEBI at the client level for index derivatives contracts. Many players breach this limit intraday but get back to allowed limits before markets close. The new limits set by SEBI will allow more head room for traders.