SEBI Notifies New F&O Rules for Investors - New Derivative Trading Limits & More Amendments

Markets regulator, the Securities and Exchange Board of India (SEBI), has issued a notification stipulating fresh measures for interest calculation for investors in the equity futures and options (F&O) segment, intra-day Market Wide Position Limit (MWPL) monitoring in single stocks, linkage of MWPL with free float and cash volume, and increased position limits for index Options and Futures.

SEBI hails the derivative market by saying it enhances market liquidity and provides investors with an efficient risk management mechanism.

MWPL Calculation Formula Tweaked to Align Derivative Trading & Stock Market Activities

The regulator updates the calculation formula for MWPL, which refers to the total derivative trading amount permissible on a single stock. The new formula considers the stock‘s free float and average daily delivery value. The move is part of the regulator’s initiative to decrease unnecessary F&O bans and align derivative trading and stock market activities.

Position Limit Enhanced for Index Options

The enhanced position limits for Index options are one of the significant updates made by the regulator. As per the amendments, the net end-of-day limit for index options now stands at INR 1,500 crore. The gross limit will be INR 10,000 crore.

A grace period, applicable to this, will be available until December 2025. Afterward, a strict oversight will be applied, said the regulator.

The SEBI, in a bid to strengthen surveillance, has directed stock exchanges to monitor trading activities throughout the day instead of days end alone. This will help identify significant increases in open interest. Subsequently, these activities will be reported, further ensuring legitimate market transactions.

SEBIs Recommendation for AIFs and MFs

SEBI has advised both Alternative Investment Funds and Mutual Funds to use a FutEq approach to determine Options exposure for short and long terms. A separate circular in this regard will come from respective SEBI departments.

Derivatives will have a new pre-opening period similar to that of the cash market. This will help ensure improved price discovery before market opening.

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