Regulatory body SEBI considers implementing stricter boundaries on intraday trading of index options
The Securities and Exchange Board of India (SEBI) is taking steps to strengthen its oversight of the derivatives market, particularly in index options trading. This move comes in the wake of the regulator's recent crackdown on US-based high-frequency trading firm Jane Street for alleged manipulative trades in Nifty and Bank Nifty options.
SEBI is planning to tighten rules for monitoring intraday positions in index options. The regulator proposes several changes, including:
- Increased Intraday Monitoring Threshold: SEBI is planning to increase the intraday monitoring threshold to ₹5,000 crore for positions, while keeping the ₹10,000 crore gross ceiling unchanged.
- Distinguishing Between Expiry and Non-Expiry Days: Exchange-level scrutiny will only be on non-expiry day breaches, but penalties for violations on expiry days will be imposed.
- Regular Exchange Checks: Exchanges will be required to monitor intraday positions at four random intervals daily, including one close to market close.
- PAN-level Net Exposure Cap: A PAN-level net exposure cap of ₹1,500 crore on index options on expiry days will be introduced to prevent outsized positions and expiry-day hyperactivity.
- Additional Exposure: Additional exposure will be allowed only if backed by cash, cash equivalents, or securities holdings.
These changes aim to enhance investor protection, improve market stability, and reduce excessive leverage and risk concentrations in the derivatives market, particularly in weekly index options near expiry.
The framework reflects SEBI's balance between allowing some intraday flexibility and enforcing strict control to prevent abusive trading strategies. The new methodology became effective on October 1, 2025.
In addition, both stock exchanges have been directed to monitor intraday thresholds at the same thresholds as end-of-day for index options - ₹1,500 crore on a net delta or futures-equivalent basis and ₹10,000 crore on a gross basis.
SEBI is also considering streamlining the monitoring process of intraday limits and possibly introducing a penalty framework in case of breaches at higher thresholds. The issue, according to sources, is not the absence of monitoring but the lack of consequences when intraday breaches occur.
The regulator's actions follow growing concerns over speculative excesses in the derivatives market. Jane Street, the high-frequency trading firm under investigation, plans to contest the regulator's findings and allegations.
Retail investors' losses in equity derivatives widened by 41% to ₹1.06 lakh crore in FY25, highlighting the need for stricter regulations to protect investors from excessive losses. The new rules are part of SEBI's ongoing efforts to create a fair and transparent market for all participants.
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