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Published on 11 July 2025
SEBI's Proposed Derivatives Position Limits: Balancing Market Integrity and Liquidity
SEBI’s Proposed Position Limits in Derivatives: A Tightrope Between Risk and Market Depth
SEBI has once again found itself at the centre of a critical market structure conversation—this time around, it’s about position limits in equity derivatives. With the derivatives market becoming increasingly complex and concentrated, the regulator is now looking to rewrite the rules of engagement.
A consultation paper released on February 24, 2025, outlines a sweeping shift in how open interest (OI) is measured and how much exposure trading entities can take. If implemented, these changes could redraw the contours of India’s derivatives landscape.
Moving Towards Delta-Based Open Interest
First things first—SEBI wants to replace the notional OI metric with something more aligned to actual market risk: delta-based OI.
In simple terms, delta-based OI adjusts exposure based on how sensitive a position is to the underlying asset’s price movements. For instance, an option that’s deep out-of-the-money would count less towards a trader’s overall position limit, because its probability of turning profitable is low. SEBI sees this as a smarter, globally consistent way to assess exposure—and not just a technical tweak.
The Numbers on the Table: Proposed Intraday Limits
Under SEBI’s proposal, the position limits would look something like this:
| Limit Type | Proposed Cap (Per Index) |
|---|---|
| Net Delta-OI (Intraday) | ₹1,000 crore |
| Gross Delta-OI (Intraday) | ₹2,500 crore |
| Futures EOD Limit | ₹1,500 crore |
| Futures Intraday Limit | ₹2,500 crore |
For context, these levels would triple the current thresholds for several market participants—marking a significant structural shift.
Industry Reactions: Supportive, but Split
As with any regulatory shakeup, opinions vary widely across the trading community.
Market makers are largely in favour of the proposed net delta-OI limit. They view it as a reasonable check that leaves enough breathing room for genuine liquidity provision without inviting excessive risk.
But the real tug-of-war is around the gross delta-OI cap.
Some in the trading world feel ₹2,500 crore might be too tight, especially for desks running market-making operations across multiple strikes and expiries. There’s been a clear push—from proprietary trading firms in particular—to double the gross limit to ₹5,000 crore, if not higher. Others are floating even more ambitious figures—₹7,500–10,000 crore—arguing that large-scale books need wider limits to function efficiently.
The Core Trade-Off: Integrity vs. Liquidity
SEBI’s motivation isn’t hard to read. The regulator is worried about manipulative positioning—where traders attempt to move index prices in the cash market to benefit their F&O positions.
Some fund managers have already flagged instances where a single desk or coordinated entities appeared to push the market into predictable patterns ahead of expiry.
By setting gross delta-OI limits, SEBI hopes to make this type of behaviour structurally difficult. As one official pointed out, it would now take coordination between 10–11 separate entities to materially move the index—substantially raising the barrier for manipulation.
That said, this effort to tighten controls might come at a cost. Proprietary trading firms, which often sit on the other side of retail trades and play a vital role in maintaining liquidity, are warning of potential fallout.
Many of these firms routinely carry positions above ₹2,500 crore across strikes and tenors. For them, these new caps could mean cutting exposure, reducing quotes, or even exiting some strategies—which could, ironically, make the market more brittle and less efficient.
Voices from the Trading Floor
Veteran options trader Mayank Bansal is among those urging caution. His view? A gross limit of ₹5,000 crore strikes a more workable balance—tight enough to discourage manipulation but still wide enough to allow large trading houses to operate without constantly bumping into ceilings.
He also raises a broader point: why penalise everyone when only a handful abuse the system?
Instead of blunt limits, Bansal argues that SEBI should zero in on bad actors, using surveillance tools and audit trails to root out manipulative intent—rather than capping all desks with a blanket rule.
The Road Ahead
SEBI’s paper is still in the consultation stage. And to the regulator’s credit, it’s made it clear that it’s listening. There’s room for adjustment—provided stakeholders bring data-backed arguments, not just noise.
The debate here isn’t just about numbers—it’s about the long-term structure and fairness of the market. Should India’s derivatives market lean toward being tightly policed, even if that crimps liquidity? Or should it preserve flexibility, at the risk of leaving some corners vulnerable?