The Securities and Change Board of India (SEBI) could enhance the brief 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 folks aware of the matter stated.
The regulator had launched a brand new place restrict on index derivatives in 2020, whereby the brief positions primarily based on notional worth in index derivatives couldn’t cross the accessible holdings of the participant. Additional, a further brief place restrict of ₹500 crore every for index futures and index choices was offered.
The brief 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 phase final yr and is anticipated to impression volumes and liquidity, particularly within the choices phase, as the power to take massive positions will get curtailed.
The restrict itself, nevertheless, now could also be elevated by as much as 4x to ₹2,000 crore, stated sources.
“This might come as an enormous aid to lots of prop brokers and excessive internet value people who at the moment handle this restrict on EOD foundation. Since this should be monitored intraday from April, a parallel enhance within the restrict from ₹500 crore to a better quantity will assist merchants handle positions effectively with out enhance in hedging price,” 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 could now be calculated on a delta-adjusted foundation, which takes into consideration dangers taken.
As an 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 brief place in 10,000 Name choices in Nifty having a strike of 26,000 expiring on February 28.
In keeping with the present guidelines, the consumer’s brief publicity will work out to round ₹46 crore (20,000*22950). In a delta adjusted state of affairs, this may scale back to ₹17.2 crore. The decrease notional worth implies that that rather more positions could be constructed up throughout the restrict offered.
Final month, SEBI whole-time member Ananth Narayan had stated that the regulator is making an attempt to measure dangers higher within the derivatives phase. Open curiosity right now is measured when it comes to the notional worth of futures and choices put collectively. This will not be right and the regulator is in discussions to maneuver to a delta primarily based matrix that might make sure that dangers are measured accurately, he had stated.
