MUMBAI: After trying to contain the retail traders from playing too big on the heavily loss-making derivatives segment last month, the market regulator Sebi has turned it eyes on the trading members.
The Securities and Exchange Board (Sebi) has raised the position limits for them, cumulatively for client and proprietary trades, in index futures & options contracts by 15x to Rs 7,500 crore or 15 per cent of the total open interest in the market, whichever is higher. Position limits are calculated on the notional value of a contract. Earlier, it was Rs 500 crore or 15 per cent of the total open interest in the market.
The direction comes to effect immediately, the regulator said.
In a circular, Sebi on Tuesday said, “Based on the feedback received from market participants, the deliberations held in the secondary market advisory committee and further internal discussions, it has been decided to increase the position limits for trading members, cumulatively for client and proprietary trades, in index futures and options contracts to Rs 7,500 crore or 15 per cent of the total open interest in the market.”
It noted that earlier the overall position limit at the trading member level (proprietary plus client) to be higher at Rs 500 crore or 15 per cent of the total open interest in the market. This position limit is separately applicable for all open positions on futures and options contracts, in a particular underlying index.
"As per the extant practice, the position limits will be applicable for index futures and index options separately," the circular added.
It also mentioned that the mechanism for monitoring the position limits will be changed and will be effective April 1, 2025.
Positions of market participants in the equity derivatives segment (index and stocks) shall also be monitored based on the total open interest of the market at the end of the previous day’s trade, the circular said.
"In conformity with the extant practice in currency derivatives segment, positions of market participants in the equity derivatives segment (index and stocks) shall also be monitored based on total open interest of the market at the end of previous day’s trade," it said, adding, "In case of a drop in market open interest compared to the previous day’s market open interest, market participants may breach the specified position limits even if their positions have remained unchanged throughout the day."
“For such cases of passive breaches, market participants would not be penalised and not be required to unwind their positions," it concluded.
Late last month, following an advisory panel’s report, the Sebi increased the F&O lot for retail traders by 3x to Rs 15 lakh and also asked brokers to take upfront money from them.
This was done after a Sebi study in September found that retail investors were losing heavily from trading in both equity derivatives as well as index derivatives losing Rs 50,000 per head from the former and close to Rs 2 lakh per head from the latter. The total loss to the public is a whopping Rs 1.8 trillion in the past three fiscals alone from trading in index futures alone. The first such study was released in March this year.