The Securities and Exchange Board of India (SEBI) is weighing new restrictions on intraday trading in index derivatives, according to reports. The move could reshape one of the busiest derivatives markets globally. SEBI’s secondary market advisory committee has been tasked with reviewing stricter position limits to curb excessive exposures and protect retail investors from systemic risks.
Push for Stricter Position Limits
According to sources cited by Reuters, the regulator may introduce caps on intraday positions and maximum allowable exposures for individual traders. The committee will also discuss improved monitoring mechanisms for exchanges. Recommendations will be reviewed by SEBI’s board before a final decision is taken. These deliberations reflect SEBI’s broader effort to balance liquidity with stability.
Past Proposals and Industry Pushback
In February, SEBI had proposed a cap of ₹1,000 crore for intraday index derivative positions. However, resistance from market-making firms forced the regulator to withdraw the plan. Instead, exchanges were directed to track exposures more closely. By May, SEBI imposed an end-of-day cap of ₹1,500 crore across option portfolios, but without specifying member-level limits.
Addressing Retail Losses and Market Dominance
The fresh curbs come amid rising concerns about retail investor losses and the outsized role of large trading firms. A SEBI study revealed that retail traders lost nearly ₹52,400 crore in FY24, while proprietary traders and foreign investors recorded profits of ₹33,000 crore and ₹28,000 crore respectively. The regulator aims to level the playing field and reduce structural imbalances.
Context: Jane Street Ban and Broader Reforms
Earlier this year, SEBI temporarily banned U.S.-based Jane Street, accusing it of manipulative strategies. Though the ban was lifted after the firm deposited $567 million pending investigation, the episode reinforced regulators’ fears of systemic risks from aggressive strategies. Alongside, SEBI has tightened rules by raising minimum lot sizes and reducing contract expiries, signaling its intent to cool down overheated trading activity.
Outlook
With India contributing nearly 60% of global equity derivatives trading volumes, SEBI’s latest reforms could significantly impact market participants. If implemented, tighter curbs on intraday trading may enhance market safety but could also face pushback from high-frequency and institutional traders reliant on large exposures.
