SEBI strengthens risk monitoring of equity derivatives

The Securities and Exchange Board of India (SEBI) on Thursday issued a set of measures to strengthen risk monitoring of equity derivatives, including the monitoring of market-wide positions on single stock derivatives.

As part of the measures, the markets regulator decided against setting hard limits on traders' intraday options positions, but changed how open interest is calculated on single stock and index derivatives for a more accurate picture of exposure.

It has set out a phased timeline for exchanges to implement these steps by December 6.

The regulator in the last year has taken several measures, such as increasing entry barriers to curb excessive speculation in India's derivatives trading market. Enhancing risk monitoring is part of those measures.

In February, SEBI had proposed new regulations to calculate open interest in derivatives contracts and suggested limits on positions traders could take to prevent manipulation and better reflect market risk.

But the regulator decided not to impose limits on intraday trading and relaxed net and gross positions from its proposals in February.

Reuters had reported earlier this month that the regulatory thinking was that such limits could stifle legitimate market-making.

SEBI, in its final norms on Thursday, raised the limit on gross options positions traders can hold to Rs 10,000 crore from the Rs 1,500 crore it had proposed.

Net options positions have been set at Rs 1,500 crore, compared to the proposed Rs 500 crore, SEBI said.

The regulator said that these relaxed limits will 'strike a balance between market stability/ fear of manipulation due to large position and traders will be able to take meaningful exposure.'