Securities and Exchange Board of India (SEBI), on Tuesday 15 October 2024, yesterday, announced revision of position limits for the trading members dealing in index futures and options (F&O) contracts. The position limit from now onwards will be ₹ 7500 crore or 15% of the entire open interest of the trading member in the market, whichever is higher.
What does it mean for the trading members?
Earlier the position limit on index F&O contracts was ₹ 500 crore or 15% of the total open interest in the market. With this new amendment from SEBI, the position limit will be now ₹ 7500 crore, or 15% of the total OI. This means the trading member can take more positions in the F&O contracts. The position limit mentioned here applies to both clients’ trades and proprietary trades. Currently, the position limits apply separately for index futures and index options.
Since the positions of a trading member in the market and also of the entire market are continuously changing and dynamic, to provide better understanding and transparency, a few other measures have also been implemented by the market watchdog, SEBI.
Similar to the practices followed in the currency derivative segment, market participants’ positions in the equity derivatives segment both index and stocks will be monitored from now onwards. This will be based on the markets’ total open interest at the day’s closing.
If the market open interest declines from the previous day’s market open interest then the trading members and market participants can ignore the particular limits even when their positions are unchanged during the day. There will not be any penalties in these scenarios as announced by SEBI and they also do not have to wind up their positions.
When it will be implemented?
While the new rules regarding position limits’ increase will be implemented immediately, starting from today, the rules for monitoring the position limits will be implemented from 1 April 2025.
Conclusion
The new rules for F&O contracts can help the trading members invest and trade more in this segment as the position limit is now quite high. With this move, SEBI somewhat balanced its previous actions in the F&O segment which disrupted the segment significantly.
Source: Mint
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