TaxTMI 
TaxTMI 
Measures for Enhancing Trading Convenience and Strengthening Risk Monitoring in Equity Derivatives
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....ion, offering of short tenure index options contracts, and heightened trading volumes in index derivatives on expiry day. Regulation 28 (2) read with Part-C of Schedule II of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018 (SECC Regulations, 2018), considers Risk Management, Surveillance, and Product development functions of Stock Exchanges and Clearing Corporations as core functions. In addition, Clearing and Settlement is considered as a core function of Clearing Corporations. 3. The Securities and Exchange Board of India Act, 1992 ("SEBI Act") mandates SEBI to protect the interest of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. One of the means to achieve the aforesaid mandate as provided in the SEBI Act is to regulate the market through measures that enables regulating the business of Stock Exchanges. 4. In order to review the existing regulatory measures for investor protection while ensuring the orderly development and strengthening of equity Futures and Options (F&O) market, as well as to identify measures to assist Stock Exchanges....
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.... 500 0.5 400 -0.5 1200 350 Client 4 -400 -0.5 -400 0.5 800 0 Market wide OI 2800 900 5.1.3. CCs have been disseminating FutEq OI for all the scrips/indices on their websites and have been intimating entity level FutEq OI to participants through their portal. The same shall be continued for the instant purpose. 5.2. Definition of Market Wide Position Limit (MWPL) 5.2.1. As per Clause 3.3.2.1.1 of Chapter 5 of the SEBI Master Circular for Stock Exchanges and Clearing Corporations dated December 30, 2024, MWPL for single stocks (i.e. aggregate open positions in all futures and all options contracts on a particular underlying stock) is 20% of the number of shares held by non-promoters in the relevant underlying security (i.e. free float holding). 5.2.2. It has been decided to calibrate it to the new formulation of OI measurement and also link it to cash market activity in the following way: 5.2.3. The MWPL shall be lower of 15% of free float and 65x Average Dail....
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....;Permissible. 3 Long Futures 1 lot + Long Put option 1 lot Overall delta reduction as long put has negative delta. Permissible. 4 Long Futures 1 lot + Long Put option 1 lot + Short OTM Call option 1 lot Further delta reduction as short call has negative delta. As long as EoD delta above 0, permissible. 5 Long Futures 2 lot + Long Put option 1 lot + Short Call option 1 lot Additional Delta creation in positive side compared to previous day. Not permissible. 5.3.4. CCs to prepare a joint SOP, in consultation with SEBI, for monitoring the end of day delta position of entities and penalty structure thereof in this regard within one month from the date of the circular (Implementation date of this measure is mentioned at Para 6 of the circular). 5.4. Intraday monitoring of MWPL utilization for single stocks 5.4.1. To safeguard market integrity and limit settlement risk from intraday spikes in FutEq OI, Stock Exchanges shall perform intraday monitoring of MWPL utilization at least four random times during the trading session to: 5.4.1.1. take appropriate actions once OI utilization breaches certain limits such as levying Addition....
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.... 5.5.2.5.2. In case of a drop in market OI compared to the previous day's market OI, market participants may breach the specified position limits even if their positions have remained unchanged/reduced throughout the day. 5.5.2.5.3. Such cases of passive breaches shall not be considered as violation. 5.5.3. In line with existing practice, in addition to the above specified position limits for index options and index futures, entities shall be allowed to take additional exposure in equity index derivatives subject to the following: 5.5.3.1. Aggregate short positions in index derivatives (short futures, short calls and long puts) shall not exceed (FutEq terms for Index options and gross notional terms for Index futures) the holding of stocks. 5.5.3.2. Aggregate long positions in index derivatives (long futures, long calls and short puts) shall not exceed (FutEq terms for Index options and gross notional terms for Index futures) the holding of cash and cash equivalent, government securities, T-Bills and similar instruments. 5.5.3.3. Stock Exchanges / CCs shall prepare a joint SOP, in consultation with SEBI, for monitoring the positions of entities including the....
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....ecurities / reported cash or equivalent on that day. Excess position beyond permissible limits, will attract Additional Surveillance Deposit/Penalty, as decided by Stock Exchanges. 5.5.4.8. It is emphasized that the provision of one day to reduce the position beyond permissible limit is only with the intention to provide time to implement delta monitoring system by entities / trading members who wish to take positions close to or beyond permissible limit. It would not impact typical retail traders / investors. To that extent, Stock Exchanges shall discuss the instances of entities repeatedly taking excess position for a day in fortnightly surveillance meeting with SEBI to ensure that the instant glide path is not misused by any entity to take large overnight positions beyond permissible limit. 5.5.4.9. Stock Exchanges/CCs shall submit a joint SOP to SEBI for operationalizing position limit monitoring during the aforesaid glide path within one month from the date of circular. The said SOP shall also include details of appropriate measures to be taken by Stock Exchanges in case of repeated instances of position creation by entities beyond permissible limit for ....
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.....8.1.2. Trading Member (Proprietary): 20% of MWPL 5.8.1.3. Trading Member (Proprietary + Client) / FPI (Category I) / MF: 30% of MWPL 5.8.1.4. FPI (Category II - other than FPIs in sub-category individuals, family offices, corporates): 20% of MWPL 5.8.1.5. FPI (Category II - FPIs in sub-category individuals, family offices, corporates): 10% of MWPL 5.8.1.6. To address the issue of entity holding significant percentage of OI in the scrip, Stock Exchanges / CCs shall prepare a joint SOP, in consultation with SEBI, to monitor such position of top entities and take appropriate measures in case of surveillance / market stability concerns arising out of concentrated / outsized positions both at delta level and notional level. 6. Phased implementation of proposals: In line with discussions with Stock Exchanges / CCs and other stakeholders, and in order to provide adequate time to market participants for shifting to FutEq OI, the phased implementation timelines are as under: Sr. No Para Brief description of the measure Effective From 1 5.1 Formulation of FutEq Open Interest Already implemented 2 5.2 Definition of Market Wide Position....
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....p; Clients may take exposure in equity index derivatives subject to the following limits: 1.3.2.2.1.1. Aggregate short positions in index derivatives (short futures, short calls and long puts) shall not exceed (FutEq terms for Index options and gross notional terms for Index futures) the holding of stocks. The same shall be sourced from the depositories by the Stock Exchanges. 1.3.2.2.1.2. Aggregate long positions in index derivatives (long futures, long calls and short puts) shall not exceed (FutEq terms for Index options and gross notional terms for Index futures) the holding of cash and cash equivalent, government securities, T-Bills and similar instruments. The members of the respective entities shall report the same to Clearing Corporation. 1.3.2.2.2. Further to para 1.3.2.2.1 above, additional position limits mentioned hereunder shall be available to Trading Members (Proprietary) / FPIs / Mutual Funds / Clients in index futures: 1.3.2.2.2.1. FPI Category I / Mutual Funds / Trading Member (Proprietary) / Clients - higher of 15% of futures OI for that index or Rs.500 cr. 1.3.2.2.2.2. FPI Category II (other than individuals, fam....
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....red to notify the names of the Clearing Member/s and Custodian through whom it would clear its derivative trades to Clearing Corporation. 1.3.3.1.2.2. A unique code would be assigned by the Clearing Corporation to each registered FPI intending to trade in derivative contracts. 1.3.3.1.2.3. The FPI would be required to confirm all its positions to the designated Clearing Members online but before the end of each trading day. 1.3.3.1.2.4. The designated Clearing Member/s would at the end of each trading day submit the details of all the confirmed FPI trades to the Clearing Corporation. 1.3.3.1.2.5. The Stock Exchanges would compute the total FPI trading exposure and monitor the position limits at the end of each trading day. The cumulative FPI position may be disclosed to the market by the Clearing Corporation on a T + 1 basis, before the commencement of trading on the next day. 1.3.3.1.2.6. In the event of an FPI breaching the position limits on any derivative contract on an underlying index, action as specified in 1.3.2.2.5 shall be applicable. 1.3.3.1.3. The open position for index derivative contracts would be valued as the Fu....
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....t be considered as violation. Index Options 2.3.2. Position Limits: 2.3.2.1. Market Level There are no market wide position limits specified for index option contracts. 2.3.2.2. Mutual Fund/ FPI/ Trading Member (Proprietary)/ Client 2.3.2.2.1. Mutual Funds / FPIs / Trading Members (Proprietary) / Clients may take exposure in equity index derivatives subject to the following limits: 2.3.2.2.1.1. Aggregate short positions in index (short futures, short calls and long puts) shall not exceed (in FutEq terms) the holding of stocks. The same shall be sourced from the depositories by the Stock Exchanges. 2.3.2.2.1.2. Aggregate long positions in index derivatives (long futures, long calls and short puts) shall not exceed (in FutEq terms) the holding of cash and cash equivalent, government securities, T-Bills and similar instruments. The members of the respective entities shall report the same to Clearing Corporation 2.3.2.2.2. Further to para 2.3.2.2.1. above, additional position limits mentioned hereunder shall be available to Trading Members (Propri....
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....3 above, would result in to levy of Additional Surveillance Deposit by Stock exchanges in accordance with para 2.3.2.2.4 above. 2.3.2.2.5.5. The above glide path will be applicable till December 05, 2025, post which entities willing to take large delta positions in index options are expected to have their own delta computing / monitoring system. Subsequent to December 05, 2025, the end of day excess position in index options on each day shall be checked by Stock Exchanges against the holding of securities / reported cash or equivalent on that day. Excess position beyond permissible limits, will attract Additional Surveillance Deposit/Penalty, as decided by Stock Exchanges. 2.3.2.2.5.6. It is emphasized that the provision of one day to reduce the position beyond permissible limit is only with the intention to provide time to implement delta monitoring system by clients / trading members who wish to take excess positions close to or beyond permissible limit. It would not impact typical retail traders / investors. To that extent, Stock Exchanges shall discuss the instances of entities repeatedly taking excess position for a day in fortnightly surveillance meeting with SEBI....