INTRADAY MONITORING OF POSITION LIMITS FOR INDEX DERIVATIVES: A NEW SEBI INITIATIVE

Introduction:

In a significant move to enhance risk management in the securities market, the Securities and Exchange Board of India (SEBI) had introduced Measures to Strengthen Equity Index Derivatives Framework for Increased Investor Protection and Market Stability through circular dated October 01,2024.

As a part of various measures introduced, the Securities and Exchange Board of India (SEBI) has issued a circular (SEBI/HO/MRD/TPD-1/P/CIR/2025/41) dated March 28, 2025, outlining the framework for intraday monitoring of position limits for index derivatives. This directive aligns with SEBI’s broader mandate to promote market integrity and investor protection.

Following SEBI's circular, both the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) released detailed Standard Operating Procedures (SOPs) through NSE Circular SURV67436 and BSE Notice 20250403-58 on April 3, 2025.

Background:

The position limits for index derivatives contracts as specified by SEBI from time to time are being monitored by Stock Exchanges/ Clearing corporations at the end of day. Particularly amidst the large volumes of trading on expiry day, there is a possibility of undetected intraday positions beyond permissible limits during the course of the day. The intraday monitoring framework aims to provide real-time oversight of positions to prevent potential market disruptions caused by excessive leverage or large directional bets. To address the aforesaid risk of position creation beyond permissible limits, it has been decided by SEBI that existing position limits for equity index derivatives shall henceforth also be monitored intra-day by exchanges.

SEBI’s circular summarized:

 1.       SEBI Circular (March 28^th, 2025)

Reference: (SEBI/HO/MRD/TPD-1/P/CIR/2025/41)

 2.        NSE Circular (SURV67436) and BSE Notice no. (20250403-58) (April 3^rd, 2025):

Following the guidelines, Exchanges released detailed Standard Operating Procedures (SOPs) summarized as below:

•  Time Window Guidelines: Exchanges will capture at least four snapshots per day, chosen randomly within pre-defined trading hour windows (not disclosed publicly to prevent timing manipulation). These snapshots will form the basis for determining breaches.

•  Participant wise position monitoring: Below is the summary for participant wise position monitoring limits for index derivatives contracts:

Trading Member wise position limits are set at higher of Rs.7500 crores or 15% of the total open interest in the market. This limit would be applicable on open positions in all futures & options contracts for a specific underlying index.

Client Level position limits require disclosure to the Exchange/Clearing Corporation for any person or group owning 15% or more of the open interest in an underlying Index. It is also specified that any non-reporting will be termed as a violation and attract penalties. The format for disclosure should be as specified in Part C (49) for Client Position in Index based contracts.

FPI category (I) and MF position limits are set at Rs. 500 crores or 15% of total open interest, whichever is higher. This applies to open positions in all futures and options contracts for a specific underlying index.

• Exposure limits: FPI Category (I) and MFs can take exposure in equity index derivatives subject to the following limits:

Short positions (short futures, short calls and long puts) should not exceed (in notional value) of their stock holdings.

While, Long positions (long futures, long calls and short puts) should not exceed (in notional value) of their cash holdings, government securities and similar assets. 

Any excess open positions will be proportionally classified as short and long based on total open positions individually.

•  Computation of Position Limits - Position limits are calculated on a gross basis for mutual funds and on a net basis for individual foreign portfolio investors/sub-schemes of MF and proprietary positions. Open positions for derivative contracts are valued by multiplying them with the closing price of the related security or index in the capital market segment of the Exchange.

•  Breach Handling: Though no regulatory penalties are levied, if a client or member exceeds limits in any snapshot, alerts will be generated and shared for risk awareness. This helps traders and brokers review behavior during volatile periods.

• Notional calculation logic & future direction: Positions at each snapshot are computed using the notional value (contract value * lot size). However, it is proposed by SEBI in recent consultation paper to shift to a delta-based or future equivalent limits for index derivatives

Reasons for Implementation:

SEBI and exchanges observed that end-of-day limits were insufficient for real-time risk containment. With increasing intraday activity, there's a risk of large positions building up temporarily and going unchecked. The interim monitoring aims to lay the foundation for more sophisticated systems like delta-based tracking. Enhanced surveillance will deter excessive speculation and improve overall market stability.

Possible impact on Traders (Especially Institutions and FPIs):

Real-time position management required as traders must now actively monitor exposure during the day—not just at EOD. Large participants (like FPIs or mutual funds) will have to ensure not to passively breach 15% OI thresholds.

With regards to reporting obligations, if positions cross 15% of total OI in any index, voluntary reporting to NSE is mandatory. This might follow increased compliance load and reputational risk in case of non-compliance. Some intraday trading strategies that push exposure close to limits may need revision. For this, traders may break up large trades across time or indices to avoid triggering snapshots that show a breach. Additionally, the aggressiveness of large trades, especially around expiry might also see an impact.

Conclusion:

SEBI's move to mandate intraday monitoring of position limits marks a major step in India’s capital market reforms. While it introduces new compliance challenges, it ultimately promotes a safer and more transparent trading environment. With NSE and BSE releasing comprehensive SOPs, market participants now have a clear roadmap for transitioning to the new framework. Timely adaptation and strategic adjustments will be crucial as the markets gear up for stricter oversight in the future.

References:

SEBI Circular - Intraday Monitoring of Position Limits for Index Derivatives (March 28, 2025)

SEBI Master Circular (December 30, 2024)

SEBI Consultation Paper (February 24, 2025)

NSE Circular SURV67436

BSE Notice 20250403-58