Sebi may ease some F&O curbs amid market concerns

Mumbai: The Securities and Exchange Board of India (Sebi) is apt to easiness immoderate of the curbs it projected connected equity futures and options trading successful February pursuing absorption from market participants, radical acquainted with the substance said.

A sheet appointed by the regulator recommended easing limits connected scale and single-stock derivatives and doing distant with the proposition to enforce a punishment successful the lawsuit of a transgression successful the trading limits. The program to alteration the mode Open Interest oregon outstanding positions of futures and options are calculated volition stay, they said.

The regulatory rethink besides comes against the backdrop of a crisp diminution successful F&O volumes from their highest implicit the past six months.

Position limits

The nett positional bounds for a trader oregon an entity successful scale options whitethorn beryllium raised from ₹500 crore to ₹1,500 crore connected either broadside (calls and puts), with a gross limit- full worth of each positions- of ₹10,000 crore, said the radical successful the know. Intraday trading is apt to stay exempt from these limits. The connection volition let traders to instrumentality ample bets connected scale options

Sebi, successful its February circular, had projected capping the presumption bounds for a trader oregon an entity astatine ₹500 crore for options and ₹1,500 crore for futures successful an effort to forestall ample players from controlling the market. Brokers and traders had said that the limits were restrictive and could interaction liquidity. In the futures segment, the revised positional limits whitethorn beryllium acceptable based connected the class of marketplace participants specified overseas portfolio investors (FPIs), communal funds, proprietary traders, and others. The wide presumption headdress for trading members-including lawsuit and proprietary positions-may besides beryllium increased, the radical said.

Intra-day limits & monitoring

Sebi is besides expected to driblet a arguable connection to enforce intraday trading limits successful futures and options.

"You should not usage regulations arsenic a substitute for supervision and surveillance," said the idiosyncratic quoted earlier.

Instead, the regulator plans to fortify real-time oversight. It volition show intraday positions crossed the marketplace 4 times a time astatine random intervals. If an idiosyncratic oregon entity is recovered to beryllium holding positions beyond acceptable thresholds, it would trigger a surveillance oregon supervisory check, alternatively than a regulatory penalty.

Globally, banal exchanges bash not enforce hard intraday limits but clasp the authorization to measurement successful erstwhile risks look elevated. "Instead, they ever person the close to telephone up a trading subordinate oregon an idiosyncratic subordinate and archer them, you are moving precise precocious positions, spot a attraction hazard and instrumentality it out, oregon to excavation deeper to spot if determination is immoderate manipulation happening," the idiosyncratic said.

OPEN INTEREST CALCULATION
The connection to alteration the mode Open Interest is calculated from the existing “notional value” method to a “delta-based” exemplary volition stay. The caller method considers the sensitivity of an enactment to its underlying plus and is seen arsenic a much close reflection of marketplace risk

“The regulatory reasoning is moving to delta, which would beryllium a acold amended metric than notional,” said a idiosyncratic acquainted with the development. A cardinal contented with the existent method is that it assigns afloat notional worth adjacent to acold out-of-the wealth options, galore of which person small oregon nary intrinsic value. This tin artificially inflate the market-wide presumption bounds (MWPL) successful definite stocks, pushing them into F&O prohibition periods.

“So a batch of radical bash wholly out-of-the-money options with zero value, clog up what we telephone the market-wide presumption limit, and truthful it goes into a prohibition period," the idiosyncratic said. "Now immoderate of this could besides beryllium manipulative.”

He added that a delta-based strategy would importantly trim the fig of spurious F&O bans. “If it does spell into ban, it is for a bully reason.”

Even successful scale options, the caller attack would let marketplace participants and regulators to much easy spot ample exposures.

“The anticipation of spurious manipulation oregon attraction hazard volition trim dramatically if the ecosystem starts to look astatine this successful delta terms,” the idiosyncratic added. Rajesh Palviya, head—technical and derivatives astatine Axis Securities, said the existent method tends to overstate marketplace hazard by giving adjacent value to each options, careless of their likelihood to beryllium exercised.

“Traditional unfastened involvement calculations based connected notional worth tin inflate the perceived hazard of a market, particularly with options that are acold retired of the money. The delta-based attack mitigates this contented by giving little value to these options, which are little apt to align with the movements of the underlying asset,” Palviya said.