The Securities and Alternate Board of India (SEBI) might improve 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 individuals aware of the matter stated.
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 obtainable holdings of the participant. Additional, a further 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 the moment being tracked by the exchanges end-of-day, will probably 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 12 months and is anticipated to impression 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, stated sources.
“This might come as an enormous aid to a number of prop brokers and excessive internet 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 into 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 quick place in 10,000 Name choices in Nifty having a strike of 26,000 expiring on February 28.
In line with the present guidelines, the shopper’s quick publicity will work out to round ₹46 crore (20,000*22950). In a delta adjusted state of affairs, 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 stated that the regulator is attempting to measure dangers higher within the derivatives section. Open curiosity right now is measured by way of the notional worth of futures and choices put collectively. This might not be right and the regulator is in discussions to maneuver to a delta primarily based matrix that might be certain that dangers are measured appropriately, he had stated.
