SEBI Implements Stricter F&O Rules from October 1 to Strengthen Market Stability

The Securities and Exchange Board of India (SEBI) will roll out a series of stricter rules for the equity derivatives (F&O) segment from October 1, 2025, aimed at curbing excessive speculation and enhancing market stability. The new framework introduces tighter monitoring, revised position limits, and measures linking derivatives risk more closely to cash market liquidity.

Market-Wide Position Limits Linked to Cash and Free Float

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Starting October, the market-wide position limit (MWPL)—the maximum permissible exposure across exchanges—will be linked to the cash volume and free float of each scrip. The MWPL will be set as the lower of 15% of free float or 65 times the cash volume, replacing the current metric based on 20% of non-promoter shareholding.

SEBI will recalculate MWPL quarterly using rolling cash volume data from the preceding three months. By tying limits to cash market delivery volumes, the regulator expects to reduce manipulation risks and better align derivatives exposure with actual market liquidity.

Single-Stock Positions During Ban Period and Intraday Monitoring

Under the revised framework, trades in F&O stocks during the F&O ban period will now be allowed if they help reduce portfolio risk. Currently, fresh positions cannot be created once a scrip enters the ban period. Moving forward, brokers and traders can only adjust positions to reduce exposure if the market-wide open interest exceeds 95% of the MWPL.

In addition, intraday monitoring of index derivatives will be strengthened. Net intraday positions will be capped at ₹5,000 crore per entity, with gross positions limited to ₹10,000 crore. Exchanges will track exposures through at least four random intraday snapshots, and breaches on expiry days will attract penalties or surveillance deposits. Additional exposures will be permitted if fully backed by securities or cash collateral, with penalty provisions taking effect from December 6, 2025.

Individual Entity Position Limits

From October 1, SEBI will also introduce individual-level limits for single-stock derivatives: 10% of MWPL for individual investors, 20% for proprietary brokers, and 30% for FPIs and brokers combined. These measures complement previous actions announced in May 2025, including new eligibility criteria for non-benchmark indices (effective November 3) and pre-open/post-close sessions for F&O from December 6.

Conclusion

SEBI’s phased rollout of tighter F&O regulations represents a decisive step towards curbing speculative trading and aligning derivatives risk with underlying cash market dynamics. The measures, including revised MWPL, intraday monitoring, and single-stock limits, are expected to strengthen overall market stability and protect investors from excessive exposure.