SEBI Introduces New Risk Management and Surveillance Measures to Strengthen Equity Derivatives Market [Read Circular]

The Securities and Exchange Board of India (SEBI) issued a Circular dated May 29, 2025, introducing a comprehensive set of reforms aimed at enhancing risk management and surveillance in the equity derivatives segment. These measures are in response to evolving market dynamics, rising retail participation, and the need for stronger oversight on derivatives trading practices.

Key Measures Introduced

1. Delta-Based Measurement of Open Interest (FutEq OI)

• Future Equivalent Open Interest (FutEq OI) will now be calculated by adjusting positions based on Delta, which measures sensitivity to the underlying asset.
• This unified metric allows consistent monitoring across futures and options.
• Market-wide and entity-level FutEq OI will be publicly disseminated and reported daily.

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2. Revised Market Wide Position Limit (MWPL) for Single Stocks

• MWPL will now be the lower of:
• 15% of free float shares, or
• 65 times the Average Daily Delivery Value (ADDV), with a floor of 10% of free float.
• This ensures derivatives trading reflects underlying stock liquidity, reducing the risk of speculative excess.

3. Stricter Rules During Ban Period

• If a stock’s FutEq OI breaches 95% of MWPL, it enters a ban period.
• During this time, only position reduction is allowed; no new or offsetting positions that increase delta are permitted.
• SEBI provides examples to help traders understand permitted behavior.

4. Intraday Monitoring of MWPL

• Stock Exchanges must track MWPL usage intraday at least four times.
• On signs of high utilization, they can apply surveillance margins or conduct entity-level scrutiny.

5. Position Limits for Index Derivatives

• Index Options:
• Net FutEq OI: ₹1,500 crore
• Gross FutEq OI: ₹10,000 crore (both long and short sides)
• Index Futures:
• Limits vary based on category (FPI, MF, Trading Members), and are the higher of a percentage of open interest or ₹500 crore.

6. Pre-Open Session for Derivatives

• A pre-open session will now be extended to current-month and rollover futures contracts, mirroring the cash market.
• This improves price discovery and reduces volatility at market open.

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7. Eligibility Criteria for Derivatives on Non-Benchmark Indices

• To avoid concentration risks, non-benchmark indices must:
• Have a minimum of 14 constituents
• Top stock ≤ 20% weight
• Top 3 stocks ≤ 45% combined weight
• Be in descending weight order

8. Individual Entity-Level Limits on Single Stocks

• Recalibrated limits based on new MWPL formula:
• Client/NRI: 10% of MWPL
• Trading Member (Prop): 20%
• TM + Client / FPI Cat I / MF: 30%
• FPI Cat II (corporates, family offices): 10% to 20%

Phased Implementation Schedule

Measure	Effective Date
Delta-based FutEq OI	Already implemented
New MWPL, Ban Period Rules	October 1, 2025
Intraday MWPL Monitoring	November 3, 2025
Index Derivatives Limits	July 1 – Dec 5, 2025 (glide path), full from Dec 6
Pre-open Session	December 6, 2025
Non-Benchmark Index Norms	November 3, 2025
Entity-Level Limits	October 1, 2025

Note: Most changes are aligned with monthly compliance testing dates.

What Stock Exchanges and Brokers Must Do

Stock Exchanges and Clearing Corporations must:

• Update systems for delta-based monitoring
• Implement Standard Operating Procedures (SOPs)
• Modify rules/bylaws as needed
• Submit periodic reports to SEBI

To Read the full text of the Circular CLICK HERE

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