The Securities and Trade Board of India (SEBI) might enhance the brief place restrict for index derivatives by as much as 4x, a transfer that might profit prop and institutional merchants forward of a brand new rule that takes impact in April, two individuals aware of the matter mentioned.
The regulator had launched a brand new place restrict on index derivatives in 2020, whereby the brief positions primarily based on notional worth in index derivatives couldn’t cross the obtainable holdings of the participant. Additional, an extra brief place restrict of ₹500 crore every for index futures and index choices was offered.
The brief place restrict of ₹500 crore, which is at present being tracked by the exchanges end-of-day, will probably be monitored intraday from April 1, 2025. That is a part of the 6 measures initiated by SEBI to curb frenzy within the index derivatives section final yr and is predicted to influence volumes and liquidity, particularly within the choices section, as the flexibility to take giant positions will get curtailed.
The restrict itself, nevertheless, now could also be elevated by as much as 4x to ₹2,000 crore, mentioned sources.
“This might come as an enormous aid to plenty of prop brokers and excessive internet price people who at present handle this restrict on EOD foundation. Since this should be monitored intraday from April, a parallel enhance within the restrict from ₹500 crore to a better quantity will assist merchants handle positions effectively with out enhance in hedging price,” mentioned Ashish Nanda, President and Head – Digital Enterprise, Kotak Securities. An electronic mail despatched to SEBI didn’t get a response.
Delta dangers
What’s extra, the notional worth of the place might now be calculated on a delta-adjusted foundation, which takes under consideration dangers taken.
For example, let’s assume a shopper takes a brief place in 10,000 Name choices in Nifty having strike of 23,000 expiring on February 28 and one other brief place in 10,000 Name choices in Nifty having a strike of 26,000 expiring on February 28.
Based on the present guidelines, the shopper’s brief publicity will work out to round ₹46 crore (20,000*22950). In a delta adjusted state of affairs, this can cut back to ₹17.2 crore. The decrease notional worth implies that that rather more positions could be constructed up inside the restrict offered.
Final month, SEBI whole-time member Ananth Narayan had mentioned that the regulator is making an attempt to measure dangers higher within the derivatives section. Open curiosity right this moment is measured by way of the notional worth of futures and choices put collectively. This might not be right and the regulator is in discussions to maneuver to a delta primarily based matrix that might be sure that dangers are measured accurately, he had mentioned.
