SEBI Seeks Safeguards: Tightens Intraday Caps, Eases Index Norms to Avert Sell-Offs

Market regulator SEBI is reviewing stricter intraday limits for index derivatives and relaxing index composition rules to reduce systemic risk and prevent forced sell-offs, particularly in heavyweight banking stocks.

Tighter Intraday Rules Back on the Table

The Securities and Exchange Board of India (SEBI) is considering reinstating tighter intraday position limits for index derivatives following concerns about manipulative trading and retail investor losses. The secondary market advisory committee has reconvened to examine individual and trading-member position caps, along with enhanced exchange monitoring. 

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This move follows SEBI’s probing action against high-frequency trading firm Jane Street earlier this year and aims to rein in outsized exposures. In February, SEBI had proposed a ₹1,000-crore cap on intraday index derivative positions, but later shelved it amid opposition from key market-making firms. The regulator now seeks fresh input before approaching its board with final recommendations.

Preventing a $1 Billion Sell-Off in Bank Stocks

In parallel, SEBI has recently adopted norms on index composition that would have required the Nifty Bank index to radically downsize the weight of top constituents. The index currently includes only 12 stocks and features HDFC Bank (29.1%) and ICICI Bank (26.5%), together accounting for over 64% along with SBI (8.7%). New guidelines limit individual stock weight to 20 % and the top three stocks’ combined share to 45%, with a mandatory minimum of 14 members per index.

Forced rebalancing under these norms could have triggered outflows worth approximately $553 million (₹4,815 crore) from HDFC Bank and $416 million (₹3,620 crore) from ICICI Bank, according to IIFL Capital. Funds would likely have been redirected toward peers like Kotak Mahindra Bank ($297 million), Axis Bank ($237 million), and SBI ($201 million).

To mitigate disruption, SEBI is proposing a “glide path”—a phased approach allowing gradual rebalancing over several months. This aims to give fund managers and market participants sufficient time to adjust. Stakeholder feedback is currently being sought as part of the consultation process.

Conclusion

SEBI is advancing a two-pronged strategy: tightening intraday trading limits to curb speculative excess and relaxing index composition rules to avoid abrupt sell-offs in heavyweights like HDFC Bank and ICICI Bank. By combining structural controls with phased implementation, the regulator is working to safeguard market stability while balancing the need for risk containment.