SEBI’s new Framework set ₹10,000 Crore Cap on Intraday Equity Index Derivatives

On 1-9-2025, the Securities and Exchange Board of India (‘SEBI’) notified Framework for Intraday Position Limits Monitoring for Equity Index Derivatives, marking a pivotal step toward enhancing market integrity and risk management in the derivatives segment. The whole circular will be effective from 1-10-2025 with one specific provision, pertaining to expiry-day penalties, becoming effective from 6-12-2025.

Key points:

1. This initiative is formalized through SEBI Circular issued on 29-5-2025, aiming to strike a balance between facilitating trading convenience and curbing excessive speculative activity, especially on contract expiry days.

2. SEBI’s initial consultation paper (Feb 24, 2025) proposed modest intraday and end-of-day limits. However, based on feedback from market participants and deliberations with the Secondary Market Advisory Committee (‘SMAC’) and Market Infrastructure Institutions (‘MIIs’), the final framework significantly revised these thresholds.

3. With this framework, SEBI introduces entity-level intraday position limits based on Futures Equivalent (FutEq) values, setting a cap of ₹5,000 crore for net positions during the trading day. This is significantly higher than the end-of-day net limit of ₹1,500 crore, allowing entities more flexibility during active trading hours.

4. A gross intraday cap of ₹10,000 crore per entity has been imposed, applicable separately to long and short positions. This ensures that directional bets remain within reasonable bounds, even if offsetting positions are held.

5. These limits are designed to:

   • Ensure orderly trading and market stability

   • Prevent outsized intraday exposures, particularly on expiry days

   • Support liquidity provision and market making

   • Provide predictability and operational clarity for market participants

6. To ensure compliance, stock exchanges are required to monitor intraday positions using at least four random snapshots of trading activity during the day. One of these snapshots will be taken between 14:45 hrs and 15:30 hrs, a time window known for heightened trading activity due to market closing and expiry dynamics.

7. Stock Exchanges will calculate FutEq positions using the prevailing underlying index price at the time of each snapshot. This ensures accurate assessment of exposure, accounting for real-time fluctuations in option deltas and index values.

8. The framework allows entities to take additional intraday exposure beyond the standard limits if they have adequate backing in the form of securities, cash, or cash equivalents.

9. If an entity breaches the prescribed intraday limits, SEBI can initiate a surveillance review. This includes:

   • Seeking a rationale from the client for the breach

   • Examining the entity’s trading activity in constituent stocks of the index

   • Discussing the breach with SEBI during surveillance meetings

10. This multi-layered approach ensures that breaches are not only detected but also investigated thoroughly to understand intent, assess risk, and determine if further regulatory action is warranted.

11. On the expiry day of options contracts, any breach of intraday position limits will attract additional penalties or surveillance deposits. This provision becomes effective from 6-12-2025, aligning with the end of the glide path for end-of-day position limits.

12. Exchanges and Clearing Corporations are required to jointly submit a Standard Operating Procedure (‘SOP’) to SEBI within 15 days of the circular’s issuance.