The Securities and Change Board of India (SEBI) could enhance the quick 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 folks accustomed to the matter mentioned.
The regulator had launched a brand new place restrict on index derivatives in 2020, whereby the quick positions based mostly on notional worth in index derivatives couldn’t cross the accessible holdings of the participant. Additional, an extra quick place restrict of ₹500 crore every for index futures and index choices was offered.
The quick place restrict of ₹500 crore, which is at present being tracked by the exchanges end-of-day, shall 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 phase final 12 months and is predicted to affect volumes and liquidity, particularly within the choices phase, as the power to take massive positions will get curtailed.
The restrict itself, nonetheless, now could also be elevated by as much as 4x to ₹2,000 crore, mentioned sources.
“This might come as an enormous reduction to loads of prop brokers and excessive web value people who at present handle this restrict on EOD foundation. Since this must 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 value,” mentioned Ashish Nanda, President and Head – Digital Enterprise, Kotak Securities. An e mail despatched to SEBI didn’t get a response.
Delta dangers
What’s extra, the notional worth of the place could now be calculated on a delta-adjusted foundation, which takes into consideration dangers taken.
As an illustration, let’s assume a consumer takes a brief place in 10,000 Name choices in Nifty having strike of 23,000 expiring on February 28 and one other quick place in 10,000 Name choices in Nifty having a strike of 26,000 expiring on February 28.
Based on the present guidelines, the consumer’s quick publicity will work out to round ₹46 crore (20,000*22950). In a delta adjusted state of affairs, this may 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 attempting to measure dangers higher within the derivatives phase. Open curiosity in the present day is measured when it comes to the notional worth of futures and choices put collectively. This will not be right and the regulator is in discussions to maneuver to a delta based mostly matrix that might be certain that dangers are measured accurately, he had mentioned.
