SEBI Introduces New Rules to Enhance Transparency and Stability in Equity F&O Market
In a significant move aimed at bolstering market stability and improving transparency, the Securities and Exchange Board of India (SEBI) has introduced a comprehensive set of reforms for the equity Futures and Options (F&O) segment. Announced on Thursday, these new rules are part of SEBI’s broader strategy to control excessive speculation and ensure a more robust, transparent, and orderly derivatives market in India.
One of the key highlights of the new regulatory framework is the overhaul in the method of monitoring open interest (OI) in the equity F&O segment. Open interest, which refers to the total number of outstanding contracts in futures or options at any given time, will now be tracked more actively by SEBI during trading hours. This marks a departure from the previous practice of monitoring open interest levels only at the end of the trading day. By implementing real-time scrutiny, particularly in single stock futures and options, SEBI aims to detect irregular trading patterns more efficiently and respond quickly to emerging risks.
Another major reform involves a recalibration of the market-wide position limit (MWPL), which denotes the maximum number of derivative contracts that can be open at any point in time for a particular stock. SEBI has now linked the MWPL to both the cash market volume and the free float of the underlying stock. This alignment ensures that stocks with lower liquidity are shielded from excessive speculative activity, thereby safeguarding retail investors and enhancing market integrity.
In a parallel development, SEBI has also revised the position limits applicable to Index Futures and Index Options. These changes are designed to strike an optimal balance between allowing institutional and retail participants to take substantial positions in major indices while also reducing the risk of market manipulation. For Index Options, the regulator has set the net end-of-day position limit for futures-equivalent open interest (FutEq OI) at ₹1,500 crore. In terms of gross positions, neither the long nor the short side is permitted to exceed ₹10,000 crore.
For Index Futures, SEBI has adopted a category-based approach to position limits. For Foreign Portfolio Investors (FPIs) classified under Category I, as well as mutual funds and brokers (including proprietary and client trades), the new cap is the higher of either 15% of the total futures open interest or ₹500 crore. For Category II FPIs, which excludes individuals, family offices, and corporates, the limit is the higher of either 10% of the total futures open interest or ₹500 crore. Additionally, brokers—across both proprietary and client accounts—will face an overall cap of 15% of open interest or ₹7,500 crore, whichever is lower.
Importantly, SEBI has clarified that these F&O limits are in addition to any positions participants may hold in the cash market or their actual stock holdings. This ensures a more comprehensive view of exposure and risk management across market segments. The cumulative impact of these reforms is expected to make the Indian F&O market more transparent, efficient, and resilient against shocks, while preserving its attractiveness for genuine hedgers and institutional investors.
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