The Securities and Exchange Board of India (SEBI), the markets watchdog, has notified new measures to calculate open interest for the equity Futures & Options (F&O) segment, linking of market-wide position limit (MWPL) with cash volume and free float, intra-day monitoring of MWPL in single stocks, and enhanced position limits for Index Futures and Index Options.
“Derivatives market enables efficient price discovery, improves market liquidity and permits investors to manage risk,” SEBI said.
SEBI tweaks Market Wide Position Limit (MWPL) calculation formula
The market regulator also revised measures with regard to MWPL ( Market Wide Position Limit), which indicates the total amount of derivative trading that can occur on a specific stock. The updated formula now takes into account both the free float of the stock and its average daily delivery value. This adjustment will help minimise unnecessary “F&O ban” and bring derivative trading in line with real stock market activity.
SEBI raises position limit for Index Options
One of the most important parts of the new measures is that SEBI raised the position limit for Index Options compared to the previously suggested limit. The revised net end-of-day limit for options has been set at Rs 1,500 crore, while the gross limit will stand at Rs 10,000 crore.
This regulation will include a “grace period” until December 2025, following which strict oversight will start.
To further strengthen surveillance, SEBI has directed that stock exchanges observe trading activity not only at the day’s end but several times throughout the day. Any significant increases in open interest will be identified and reported.
SEBI recommendation for MFs and AIFs
SEBI has recommended that both Mutual Funds and Alternative Investment Funds should assess Options exposure, whether long or short, based on a FutEq approach. The respective departments of SEBI will issue a separate circular for this. The relevant departments of SEBI will release a separate circular regarding this matter.
A new pre-opening period for derivatives is being established, similar to that of the cash market, to facilitate better price discovery before market opening.