Sebi Panel Proposes Intraday Limits on Index Derivatives: Sources

Quick Summary

• An Indian market regulator’s panel has recommended capping intraday net positions in equity index derivatives at ₹1,500 crore (approximately $172 million).
• The move aims to address concerns over manipulative trading practices and retail investor losses.
• This follows SEBI’s earlier proposal in February for a ₹10 billion limit, which was scrapped due to opposition from large market-making firms.
• Exchanges currently cap an entity’s end-of-day net position at ₹15 billion and gross position at ₹100 billion.
• Intraday limits were deemed necessary after data showed derivative positions often exceed end-of-day limits on maturity days.
• Stock exchanges have sought clarity on thresholds for initiating penalties and monitoring trades breaching these limits.
• Penalties will apply to entities violating the set thresholds, with stricter oversight on foreign entities trading through intermediaries also recommended.

Indian Opinion Analysis
The SEBI panel’s recommendation signals a proactive approach to stabilizing India’s equity derivatives market by trying to curb excessive speculation that may harm retail investors. Introducing intraday caps could reduce the risk of manipulative strategies without compromising liquidity significantly if implemented effectively. While aligning regulations with observed trading behaviors is prudent, balancing needs of institutional participants with protection for retail investors remains crucial for long-term market confidence. Enhanced oversight of foreign entities highlights SEBI’s intention to ensure a transparent trading ecosystem but raises questions about enforcement complexity given intermediary structures.

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