The Securities and Change Board of India (SEBI) might improve the brief place restrict for index derivatives by as much as 4x, a transfer that may profit prop and institutional merchants forward of a brand new rule that takes impact in April, two folks aware of the matter stated.
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 out there holdings of the participant. Additional, an extra brief place restrict of ₹500 crore every for index futures and index choices was supplied.
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 power 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, stated sources.
“This might come as an enormous aid to quite a lot 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 value,” stated 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 may cut back to ₹17.2 crore. The decrease notional worth implies that that rather more positions might be constructed up throughout the restrict supplied.
Final month, SEBI whole-time member Ananth Narayan had stated that the regulator is making an attempt to measure dangers higher within the derivatives section. Open curiosity at the moment is measured by way of 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 may make sure that dangers are measured appropriately, he had stated.
