The Securities and Exchange Board of India (SEBI) has proposed changes to position limits in index options, a move that could alter trading behaviour, especially on expiry days.
Higher Thresholds and Penalties
As per the proposed framework, the intraday monitoring threshold for index options will be increased to ₹5,000 crore (net delta exposure) from the current ₹1,500 crore. The overall gross ceiling remains capped at ₹10,000 crore. Importantly, breaches on expiry days will now attract financial penalties, aimed at curbing aggressive and concentrated trades.
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Impact on Trading Behaviour
Market participants believe the proposal will redistribute liquidity rather than reduce it. Trading activity could spread more evenly across the week instead of being concentrated on expiry days. However, analysts caution that expiry-day volumes may decline as proprietary traders and algo firms turn more watchful.
Expert Views
Rupak De, Senior Technical Analyst at LKP Securities, noted that penalties for breaches will “reduce the volume on expiry days.” Analysts further estimate that expiry-day turnover could see a 15–20% decline, primarily affecting large proprietary firms that account for a significant share of market turnover.
Market Insights and Updates
Expiry-day volumes could witness a short-term wobble, especially from arbitrageurs and market makers.
The move may encourage better participation on non-expiry days, spreading out liquidity.
Prop traders are expected to adopt a more cautious trading approach under the new regime.
Key Insights
SEBI aims to curb sharp, concentrated expiry-day bets.
Expiry-day turnover could drop by 15–20%.
Liquidity may shift to non-expiry days, balancing market activity.
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