SEBI Considers Slab-Based Limits for Brokers’ Derivatives Exposure

The Securities and Exchange Board of India (SEBI) is reviewing how brokers manage their exposure to index derivatives to reduce market risk and prevent excessive concentration. According to people familiar with the matter, the regulator is considering replacing the current uniform limit system with a slab-based framework that aligns with delta-adjusted measurements.

Currently, broker exposure is monitored on a notional basis, where limits are calculated by taking the higher of net long or net short positions across contracts. However, this approach has led to repeated breaches in popular index options such as Nifty, Sensex and Bank Nifty Index. SEBI noted multiple instances of violations earlier this year, highlighting gaps in the existing framework.

Proposed Slab-Based Structure

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The new mechanism under discussion would set broker position limits based on the size of the index and its average daily delta-adjusted open interest from the previous quarter. Delta-adjusted limits factor in an option’s sensitivity to price changes in the underlying asset, offering a more accurate picture of risk exposure.

For example, under the proposed model:

• If the index open interest is below ₹10,000 crore, the cap may be ₹2,000 crore.
• For open interest between ₹10,000 crore and ₹30,000 crore, the ceiling could rise to ₹6,000 crore.
• For levels up to ₹50,000 crore, the limit may be ₹10,000 crore.
• For indices with open interest above ₹50,000 crore, the cap may reach ₹12,000 crore.
• These thresholds would be revised every quarter to reflect evolving market activity.

Addressing Market Risks

Market experts believe this system will provide greater predictability for participants while limiting the risks posed by concentrated positions in smaller indices. One source explained that SEBI’s concern stems from breaches observed in May, which exposed shortcomings in the notional-based monitoring system.

The regulator has assured stakeholders that broker limits will remain higher than delta-adjusted limits or the proposed hard caps, ensuring sufficient trading flexibility while strengthening safeguards.

Shift Towards Delta-Based Monitoring

At the client level, SEBI already shifted position limit calculations to a delta-adjusted, or Futures Equivalent (FutEq), method in May 2025. This approach converts long and short positions into delta equivalents, then compares them with market-wide delta open interest. Brokers, however, are still subject to notional limits, creating inconsistencies in risk monitoring.

Industry participants have urged SEBI to bring broker-level rules in line with client-level practices. By adopting a delta-based model, the regulator aims to better capture real market risk and maintain consistency across the system.

Recent Developments

In October last year, SEBI raised broker position limits from ₹500 crore or 15% of market open interest, whichever was higher, to ₹7,500 crore or 15% of open interest in the futures and options segment. The regulator also shifted monitoring responsibilities from clearing corporations to stock exchanges. However, penalties for breaches have since become lighter. SEBI has indicated that stricter measures may return if violations persist.

Conclusion

SEBI’s move towards a slab-based, delta-adjusted framework represents a significant step in strengthening risk management in the derivatives market. By replacing uniform limits with size-based caps, the regulator aims to improve consistency, prevent excessive exposure, and align broker-level monitoring with modern risk-assessment practices.