SEBI Increased Index F&O Position Limits for Trading Members by 15x

In a significant step to strengthen the equity derivatives market, the Securities and Exchange Board of India (SEBI) has increased the position limits for trading members (TMs) in index futures and options contracts.

Previously, TMs could hold positions valued at up to ₹500 crore or 15% of the total open interest (OI)—the total number of outstanding contracts in the market. This cap has now been raised dramatically to ₹7,500 crore or 15% of total OI, whichever is greater.

The revised limits apply to both proprietary trades (where firms invest their own funds) and client trades (where firms act on behalf of clients).

SEBI implemented this change in response to feedback from market participants and discussions with the Secondary Market Advisory Committee (SMAC). The regulator announced these updates in a circular dated October 15, 2024.

“Based on the feedback received from market participants, deliberations held in the Secondary Market Advisory Committee (SMAC), and further internal discussions, the position limits for TMs, for both client and proprietary trades, in index futures and options contracts may now be set at ₹7,500 crore or 15% of the total OI in the market,” SEBI stated in the circular.

As per current practice, the position limits will apply separately for index futures and index options.

Monitoring and Breach Mechanism

SEBI is also revising its monitoring approach. Starting April 1, 2025, it will track limits based on total market open interest at the end of the previous trading day. This change ensures that traders will not face penalties if the overall market OI unexpectedly declines while their positions remain unchanged.

This situation is termed a “passive breach,” where traders will not need to unwind their positions or incur penalties.

“In the event of a decrease in market OI compared to the previous day’s OI, market participants may exceed the specified position limits even if their positions have not changed throughout the day. In such instances of passive breaches, participants will not be penalized and will not be required to unwind their positions,” the circular noted.

While the new position limits are effective immediately, the revised monitoring mechanism will be implemented on April 1, 2025. SEBI has instructed stock exchanges and clearing corporations to update their by-laws accordingly and to inform market participants of the new provisions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.