From 1 October 2025 onwards, SEBI will impose entity level intraday net position limits of INR 5,000 crore and gross limits of INR 10,000 crore for index options contracts, measured on a futures equivalent (FutEq) basis. In addition, stock exchanges will be required to perform at least four random intraday snapshot checks (including one between 14:45–15:30 IST) to monitor compliance. For corporates, brokers and financial institutions, this introduces new operational, reporting and governance requirements especially on high volume expiry days.
In Depth Analysis
1. Key Provisions at a Glance
- Net intraday position limit: INR 5,000 crore per entity for index-options, effective 1 October 2025.
- Gross intraday position limit: INR 10,000 crore per entity (on a futures-equivalent basis) separately for longs and shorts (in some reporting) under the new framework.
- Monitoring requirement: Stock-exchanges must take at least four random intraday snapshots of positions — one of which must fall between 14:45 and 15:30 IST.
- Penalties: Breaches on expiry days will attract enhanced scrutiny and additional surveillance deposits/penalties from 6 December 2025.
2. Why This Move?
- SEBI’s decision follows observations of outsized intraday positions in index-options that contributed to abrupt market swings, especially on expiry days (such as the case of Jane Street Group) – which raised concerns about retail investor exposure and market integrity.
- The derivatives market in India is large and expanding rapidly; tighter real-time surveillance is seen as necessary to maintain orderly trading while preserving liquidity.
- By defining clear intraday limits and stronger monitoring, SEBI aims to bring more transparency and risk-control into the F&O segment, reducing speculation and aligning with global best-practices.
3. Implications for Stakeholders
A. Brokers and Trading Platforms
- Systems need to detect and aggregate real-time exposures per entity and apply the newly defined limits.
- Platforms must integrate monitoring logic for “futures-equivalent” (FutEq) calculation of options exposures — as per SEBI’s requirement.
- On expiry days, risk teams must be alert for exposures nearing limits and prepare for additional surveillance deposits or penalty regimes.
- Brokerage agreements, margining policies and risk-alerts must be revisited to account for intraday cap compliance.
B. Institutions / Proprietary Traders / Market Makers
- Entities taking large intraday positions (especially proprietary desks in index-options) will need to map their historic intraday patterns and assess whether their business model needs adjustment.
- Strategic hedging programs or short-term speculative bets may be constrained by the new cap – requiring changed positioning strategies and possibly reduced leverage.
- On expiry days, the trading environment may see tighter liquidity or altered behaviour due to monitoring and caps – entities must test scenarios and plan for potential margin/spread impact.
C. Corporates using Derivatives for Hedging
- Corporates that hedge index-linked exposures (for example, through index options) may see secondary effects: greater monitoring of counterparties, potential cost changes if brokers adjust risk pricing, and possible indirect effects on option pricing due to market-wide cap regime.
- Legal and treasury teams should assess whether their hedging agreements need clauses capturing cap-related risks, counterparty obligations and early notice obligations in event of limit changes or surveillance actions.
D. Regulators & Exchanges
- Stock-exchanges and clearing corporations must prepare SOPs (standard operating procedures) for intraday monitoring and review the system of snapshots, alerts, position tracking and reporting to SEBI.
- They must also liaise with participating entities to ensure compliance logic is built out and educate market participants about the new structure in advance of effective date.
4. Challenges & Strategic Considerations
- FutEq calculations: Entities must ensure accurate futures-equivalent exposure calculations for options; miscalculations could lead to violations.
- System readiness: Real-time monitoring & snapshot logic may require significant upgrades (systems, data feeds, aggregation across clients/entities).
- Liquidity risk: While the caps preserve market-integrity, large institutional players may reduce intraday activity, potentially affecting liquidity — especially on expiry days. Entities must prepare for such changes.
- Behavioural shift: Market-makers and proprietary desks may shift toward longer-term positions rather than intraday large bets, altering risk-profiles and potentially requiring adaptation.
- Enforcement clarity: Although limits are defined, some details (fine quantum, criteria of breach, permissible waivers) may still evolve; staying aligned with SEBI circulars and exchange notifications is critical.
5. Strategic Recommendations
- Conduct an exposure-audit of your current index-options trading or hedging frameworks, focusing on intraday peak exposures and expiry-day behaviour.
- Update your risk-dashboard: incorporate intraday cap thresholds (INR 5,000 crore net, INR 10,000 crore gross) as alert triggers, and build scenario stress-tests for expiry-day spikes.
- Review your contracts & service-agreements: include provisions for compliance with SEBI intraday limits, disclosure obligations to your counterparties, and representation/indemnity clauses on cap-related risk.
- TUpgrade systems & processes: Ensure your aggregation and reporting framework can compute FutEq exposure in near-real time, send alerts when exposures approach limits, and capture snapshot logs and audit trails.
- Engage with your brokers/clearing members: clarify how they will monitor intraday caps, whether they will embed additional margin or surveillance for clients nearing exposures, and how expiry-day exposures will be handled.
- Communicate with internal stakeholders (treasury, trading desk, risk team): train them on new monitoring regimes, exposure management, and compliance obligations linked to intraday limits and expiry-day surveillance.
Impact Summary
- For brokers/trading platforms: Must integrate intraday exposure controls, intrusion-detection for cap breaches, and audit-trail systems.
- For institutional traders/proprietary desks: Large intraday exposure playbooks may no longer work unmodified — risk models and trading strategies must be updated.
- For corporates using index derivatives for hedging: Although primarily using hedging rather than speculation, you should assess whether counterparty positioning or market-behaviour changes post-cap affect your hedge cost or reliability.
- For compliance/legal teams in finance institutions: Need to map and document new internal governance around exposure thresholds, early-warning systems, potential cap-breach risk and reporting obligations.
- For the market at large: The new regime aims to bring more discipline, reduce outsized expiry-day volatility, and enhance market-integrity — but may also reduce speculative intraday liquidity, meaning market-participants must adjust accordingly.
With SEBI defining intraday caps for index options and requiring four random intraday snapshots, it is clear that the regulator is moving away from end-of-day monitoring to live intraday surveillance. Brokers, proprietary desks and hedging corporates must treat cap compliance as an operational risk and build their systems accordingly.