SEBI Set To Ease Curbs On Index Options Trading

The Securities and Exchange Board of India (SEBI) is expected to relax its proposed restrictions on trading in index options by significantly increasing position limits, according to sources cited in an NDTV Profit report on Sunday.

Sources familiar with the matter revealed that SEBI is leaning towards allowing a net end-of-day limit of ₹1,500 crore and a gross limit of ₹10,000 crore (each side) for index options.

This marks a considerable increase from the regulator’s earlier proposal, which suggested a net limit of ₹500 crore and a gross limit of ₹1,500 crore.

In a move likely to benefit active traders, intra-day trading in index options may remain uncapped.

Instead, SEBI and stock exchanges will reportedly monitor positions up to four times a day through a strengthened surveillance mechanism.

Shift To Delta-Based Metrics

In a significant shift from current practices, SEBI plans to adopt a delta-based open interest metric.

This method, which reflects actual economic exposure rather than the potentially inflated notional value of trades, aims to provide a more accurate picture of market risk and concentration.

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If a trader’s exposure crosses predefined thresholds, SEBI may initiate investigations to detect potential manipulation or excessive concentration in the market.

Broader Reforms In Market Infrastructure

This development follows SEBI’s recent efforts to strengthen governance across Market Infrastructure Institutions (MIIs), including stock exchanges, clearing corporations, and depositories.

As part of its governance overhaul, the regulator announced that certain non-independent directors must observe a cooling-off period before joining competing institutions.

SEBI introduced this measure to prevent conflicts of interest and uphold the integrity of India’s financial markets.

SEBI clarified that a non-independent director serving on the governing board of a depository may join a recognised stock exchange, clearing corporation, or another depository only after completing a cooling-off period, as specified by the governing board and with prior approval from the Board.

Implications For Market Participants

SEBI’s proposed relaxation and regulatory shift come at a time when derivatives trading, particularly in index options, has seen a significant surge.

Market participants have long sought more flexibility, and the regulator’s evolving stance appears to strike a balance between market efficiency and systemic oversight.