Sebi Introduces New Measures To Improve Risk Monitoring In Equity Derivatives

The Securities and Exchange Board of India (Sebi) has issued a set of measures to improve risk monitoring and trading discipline in the futures and options (F&O) space. The reforms, issued via a circular dated May 29, 2025 have come amid an increasing retail participation in equity derivatives trading, record trading volumes on expiry days, and increased use of short-tenure contracts.

“This is specifically pertinent in view of the evolving market dynamics in derivatives segment in recent years, with increased retail participation, offering of short tenure index options contracts, and heightened trading volumes in index derivatives on expiry day,” Sebi said in the circular.

The new measures will be implemented in a phased manner in order to provide adequate time to market participants for adjust to the reforms. The implementation will start from July 1, 2025 and will be completed by December 6, 2025, Sebi said. “In general, implementation dates are aligned with monthly compliance mock sessions conducted by stock exchanges which happen on the first Saturday of the month,” Sebi said.

New Sebi Rules For F&O: Key Measures Announced

Here are some of the key measures announced in the circular

New Method To Measure Open Interest: Sebi has introduced a more accurate method to measure traders’ positions in the derivatives market. The regulator intends to do this by using a delta-adjusted metric called Future Equivalent Open Interest (FutEq OI).

By converting both futures and options into a common delta-adjusted format, Sebi plans in getting a clearer picture of each trader’s actual market exposure and their net directional bets.

Market-Wide Position Limits: Sebi has also revised the method of calculating the market wide position limit (MWPL) for single stock derivatives to ensure that derivatives exposure is more in line with the actual liquidity in the cash market.

Under the new framework, the MWPL will be set as the lower of two values: either 15 per cent of the stock’s free float market capitalisation, or 65 times its Average Daily Delivery Value (ADDV) in the cash market. However, to maintain a minimum level of participation, a floor has been set at 10 per cent of the free float.

“Tying the MWPL to cash market delivery volume will reduce the potential manipulation and better align derivatives risk with the underlying cash market liquidity,” Sebi said.

Stricter Rules During F&O Ban: Once a stock enters the F&O ban period, entities will be required to actively reduce their net FutEq OI. Sebi has clarified that any increase in delta exposure during this time will be deemed non-compliant, even if it is due to changes in position composition.

To ensure compliance, a joint standard operating procedure (SOP) will be put in place for monitoring such activity and enforcing penalties against those who break the rules.

Pre-Opening Session For Derivatives Contracts: From December 6, 2025, pre-open sessions will be introduced for derivatives contracts to make rollovers smoother and improve price discovery. Pre-opening session is currently available in the cash market only.

Other Measures Sebi Introduced

Among the other steps Sebi undertook are tighter checks on MWPL usage, with exchanges now required to carry out at least four random intra-day inspections each day. If there are any violations, it could result in trading restrictions or extra surveillance margins.

Sebi has also introduced new position limits for index derivatives, including a Rs 1,500 crore net delta-adjusted limit and a Rs 10,000 crore gross limit for options, while the limit for futures will vary by participant type.

Sebi has also put in place stricter rules for launching derivatives on non-benchmark indices to avoid too much concentration. Lastly, Sebi has revised the limits on single stock positions to align them with the new MWPL framework.

How Will The New Measures Impact Retail Traders

Naman Shah, senior vice-president and head of sales at Ohm Dovetail, a leading clearing member in India, told Outlook Money, “The revised position limits and real-time monitoring will help in curbing excessive speculation, while also improving control over large exposures. This contributes to a stronger risk management framework.”

Shah added that standardising expiry days and tightening rules around large positions will help reduce market volatility and better protect retail investors. He added: “Linking position limits to cash market liquidity ensures that derivative positions are more grounded in actual market activity.”

He further said that by allowing higher gross exposure while maintaining net limits, Sebi’s move balances flexibility for institutions while containing systemic risk. According to Shah, all these measures are a proactive step toward creating a “safer, more resilient, and investor-friendly derivatives market” in India.