Hello Traders & Investors
In continuation of SEBI’s efforts to strengthen the derivatives market, the next and last set of changes will come into effect from 1st April 2025. The set of measures implemented on 20th Nov 2024 & 10th Feb 2025. These updates aim to improve investor safety, reduce excessive risk, and bring more stability to the market. This is the last of 6 key points in the framework. The change include:
Intraday monitoring of positions limit
The position limits for index derivatives contracts, as specified by SEBI from time to time, are currently monitored by Stock Exchanges and Clearing Corporations at the end of each trading day. However, on days with high trading volumes, particularly expiry days, there exists a potential risk of intraday positions exceeding the permissible limits going undetected.To mitigate this risk, it has been decided that position limits for equity index derivatives will now also be monitored on an intraday basis by the exchanges. For this purpose, Stock Exchanges shall capture a minimum of four position snapshots during the trading day. The exact number of snapshots may be determined by each Stock Exchange, but must not be fewer than four. These snapshots will be taken randomly within predefined time windows.
What is Position Limit?
A position limit refers to the maximum allowable exposure that a client can take in derivative contracts at any point in time. For equity index derivatives, SEBI has set a standard short position limit of ₹500 crore per client. The short position includes Short Futures, Short Call Options & Long Put Options. This is the cap on the gross open positions (on the short side) that any client can hold.
How is gross open position exposure calculated?
As per SEBI guidelines, gross position exposure refers to the total notional value of all open positions in index derivative contracts, calculated on a gross basis without offsetting long and short positions.
For futures
Gross Exposure = Quantity × Futures Traded Price
For options
Gross Exposure = Quantity × (Strike Price + Option Premium)
What are the consequences if the position limit is breached?
In the event of a position limit breach, the exchange will levy an additional margin on the excess exposure and will be held in cash form for a period of one month. If the client fails to maintain the required additional margin, Dhan will apply penalty charges on the shortfall at a rate of 0.0438% per day (for 1 month upfront), until the margin is fully funded or released. How gross exposure works at dhan is explained in detail in Dhan RMS Policy under the heading - “Breach of Gross Exposure”
With this, all six points from SEBI’s circular dated October 1, 2024, are now implemented. Let us know in the thread below, how these changes and evolving market conditions affected your trading style? What changes have you done in your trading strategies?
Happy Trading
Naman