The Securities and Trade Board of India (SEBI) could improve the quick 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 aware of the matter mentioned.
The regulator had launched a brand new place restrict on index derivatives in 2020, whereby the quick positions primarily based on notional worth in index derivatives couldn’t cross the accessible holdings of the participant. Additional, a further quick place restrict of ₹500 crore every for index futures and index choices was supplied.
The quick place restrict of ₹500 crore, which is at present being tracked by the exchanges end-of-day, might 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 impression volumes and liquidity, particularly within the choices phase, as the power to take giant 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 a variety 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 improve within the restrict from ₹500 crore to the next quantity will assist merchants handle positions effectively with out improve 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 under consideration dangers taken.
For example, 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.
In response to the present guidelines, the consumer’s quick publicity will work out to round ₹46 crore (20,000*22950). In a delta adjusted situation, it will scale back to ₹17.2 crore. The decrease notional worth implies that that rather more positions will be constructed up throughout the restrict supplied.
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 by way of the notional worth of futures and choices put collectively. This is probably not right and the regulator is in discussions to maneuver to a delta primarily based matrix that will be sure that dangers are measured appropriately, he had mentioned.
