The Securities and Trade Board of India (SEBI) could improve the brief place restrict for index derivatives by as much as 4x, a transfer that will profit prop and institutional merchants forward of a brand new rule that takes impact in April, two folks conversant in the matter mentioned.
The regulator had launched a brand new place restrict on index derivatives in 2020, whereby the brief positions based mostly 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 the moment being tracked by the exchanges end-of-day, will likely 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 anticipated to influence volumes and liquidity, particularly within the choices section, as the flexibility 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 aid to a number of prop brokers and excessive web price people who at the moment handle this restrict on EOD foundation. Since this should be monitored intraday from April, a parallel improve within the restrict from ₹500 crore to the next quantity will assist merchants handle positions effectively with out improve in hedging price,” 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 under consideration dangers taken.
As an 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.
In response to the present guidelines, the shopper’s brief publicity will work out to round ₹46 crore (20,000*22950). In a delta adjusted situation, this can scale back to ₹17.2 crore. The decrease notional worth implies that that rather more positions may 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 section. Open curiosity immediately is measured by way of the notional worth of futures and choices put collectively. This might not be appropriate and the regulator is in discussions to maneuver to a delta based mostly matrix that will be certain that dangers are measured accurately, he had mentioned.
