SEBI Panel to Deliberate on F&O 2.0 Reforms Today: Key Changes in Derivatives Market Under Review

The Securities and Exchange Board of India (SEBI) 's Secondary Market Advisory Committee is set to meet today, May 7, to finalise major proposals under its Futures and Options (F&O) 2.0 regulatory overhaul. The meeting will focus on enhancing trading efficiency and tightening risk control mechanisms within the equity derivatives segment.

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Key Regulatory Proposals Under Review

1. Delta-Based Open Interest (OI) Calculation: SEBI is considering replacing the traditional notional OI method with a delta-based Open Interest model (FutEq OI). This aims to capture better the risk associated with F&O positions by measuring price sensitivity. It is expected to prevent stocks from entering the ban period unnecessarily.

2. Linking MWPL with Cash Volume: SEBI proposes linking the Market-Wide Position Limit (MWPL) with cash market volumes to curb excessive speculation. The proposed formula is 15% of the free-float market cap or 60 times the cash volume across exchanges. This could regulate derivatives exposure and enable risk-reducing trades during ban periods.

3. Real-Time MWPL Monitoring: Currently, MWPL is tracked at the end of the day. SEBI now suggests intraday monitoring—up to four times daily—by clearing corporations to capture not only real-time risk but also prevent large intraday spikes in open interest.

4. New Intraday Limits for Index Derivatives: The panel evaluates revised intraday and end-of-day position limits. Proposed caps include ₹1,000 crore (intraday) and ₹500 crore (EoD) for index options and ₹2,500 crore (intraday) and ₹1,500 crore (EoD) for index futures. This update is based on market growth since 2020, though brokers and FPIs are lobbying for significantly higher limits.

5. Pre and Post-Market Sessions for F&O: In line with the cash market, SEBI is considering introducing pre- and post-close trading sessions for derivatives. This may enhance price discovery and trading convenience.

6. Stricter Criteria for Non-Benchmark Indices: The regulator is pushing higher eligibility standards for F&O trading on non-benchmark indices. Proposed norms include a minimum of 14 constituents, with weight caps on the top stocks in the index.

7. Revised Position Limits: SEBI proposes tiered position limits for single stocks across various participant categories such as retail clients, proprietary traders, FPIs, and corporates. Limits range from 5% to 30% of MWPL or FutEq.

8. Uniform Expiry Days for F&O: SEBI has proposed that all equity derivatives expire on Tuesday or Thursday to streamline trading and reduce confusion. Exchanges may continue to offer one weekly index options expiry on their chosen day.

Conclusion

While consensus exists on most proposals, differences persist around position limits, MWPL linkage, and expiry days. A final decision after today's panel meeting will shape the future landscape of India's equity derivatives market.