SEBI Increases Index F&O Position Limits To Rs 7,500 Crore For Trading Members; What Does This Mean?

The Securities and Exchange Board of India (SEBI) has raised the position limits for trading members (TMs) in index futures and options contracts. The new limits, effective immediately from October 15, will allow trading members, both for client and proprietary trades, to hold positions up to Rs 7,500 crore or 15% of the total open interest (OI) in the market, whichever is higher. This is a substantial increase from the earlier limit of Rs 500 crore or 15% of the total market open interest.

This change, introduced through a SEBI circular, marks a key shift in the regulatory framework for the Indian derivatives market, particularly for index futures and options. SEBI made the decision after extensive feedback from market participants and detailed discussions within its Secondary Market Advisory Committee (SMAC).

SEBI's move to increase the position limits is expected to boost trading volumes and provide greater liquidity in the market, particularly in index derivatives. The earlier limit of Rs 500 crore was seen by many market participants as a restrictive cap, which curtailed their ability to take large positions.

With the new limits, trading members can now take significantly larger positions in both index futures and index options contracts. This is expected to attract more institutional investors and large proprietary traders. The new Rs 7,500 crore cap, in particular, provides much-needed room for bigger market players to participate without the risk of hitting regulatory ceilings prematurely.

The position limits are calculated based on the notional value of the contract, and these new limits will apply separately for futures and options contracts on any underlying index. This means that trading members can hold higher positions in each segment-futures and options-independently. For instance, a trading member can now hold up to Rs 7,500 crore worth of positions in index futures, while also holding up to the same limit in index options.

The SEBI circular also introduced changes in how position limits will be monitored, aligning the equity derivatives market with the existing practices in the currency derivatives segment. Starting from April 1, 2025, market participants' positions in both index and stock derivatives will be monitored based on the total open interest at the end of the previous trading day.

Additionally, SEBI clarified how breaches of position limits would be handled under the new framework. The circular specifically addressed the issue of "passive breaches," where a participant's position may exceed the specified limit not because of active trading but due to a reduction in overall market open interest. In such cases, SEBI has decided that participants will not face penalties or be forced to unwind their positions, provided the breach was passive and their positions remained unchanged.

The immediate effect of these changes is expected to be a surge in activity within the index derivatives space. With more room to manoeuvre, trading members can now execute larger strategies without being constrained by low position limits. This could lead to increased participation from both domestic and international institutional investors.

For market participants, especially large trading houses and proprietary desks, this regulatory change brings relief and the ability to scale operations more effectively. The previous Rs 500 crore limit had often been criticized for stifling growth, especially as the market expanded. With the new Rs 7,500 crore threshold, market participants can expect smoother operations.