Brokers ask Sebi to reconsider planned F&O position limits

Brokers have asked the country's capital markets regulator to reconsider its proposal to restrict position limits-the maximum amount that an entity can hold in the futures and options (F&O) segment. In a communication to the Securities and Exchange Board of India as part of the feedback process, broker bodies have warned that this, along with the plan to revise the calculation of open interest-outstanding positions in a derivative contract-could further dampen trading volumes in the futures and options segment.

limits for options

Brokers have urged the regulator to combine the proposed limits of ₹500 crore for options and ₹1,500 crore for futures into a single consolidated limit and raise the overall position cap to ₹7,500 crore, said people aware of the matter.


Sebi had proposed capping the position limit for a trader or an entity at ₹500 crore for options and ₹1,500 crore for futures in an attempt to prevent large players from controlling the market. The position limits were first introduced during Covid in 2020 to reduce market volatility. Brokers and traders believe that the proposed limits are restrictive and could impact liquidity. Volumes in futures and options (F&O) have already declined by half from their peak over the past six months as multiple regulatory interventions have sought to curb excessive retail participation in the derivatives market.

Prop traders

Brokers said proprietary (prop) traders, who are among the most active in the equity derivative segment, must be given the same position limits as foreign portfolio investors (FPIs) and mutual funds (MFs). Currently, prop traders-who use their own capital to trade-are treated as clients. Several global hedge funds have set up shop in India as prop traders, and they would be significantly affected if the ₹500 crore limit is imposed on them, said market participants.

Outstanding positions

Brokers are also urging Sebi to reconsider its proposal to change the way open interest is calculated. Currently, OI is based on notional value or the total contract value. The regulator wants to shift to a 'future equivalent' or "Delta-based' approach, which factors in the option's price movement relative to the underlying asset. While this is aimed at improving risk management and transparency, it may also result in lowering open interest and lead to lower volumes. Under the proposed changes, hedgers may be unable to fully utilise their market-wide position limits because of the way delta is being factored into exposure calculations.

This could unintentionally favour directional traders (who bet on market movements) over hedgers (who use F&O to manage risk), said brokers.