Sebi likely to introduce intraday limits for index options trading
Aug 19, 2025
Sebi plans to introduce an intraday limit in index options trade to prevent excessive positions by clients. This move follows a crackdown on high-frequency trading firms and aims to enhance oversight amid rising retail investor losses in the derivatives segment.
A committee set up by the capital markets regulator has discussed a proposal to introduce an intraday net exposure limit of ₹1,500 crore on the expiry day of weekly options like Nifty and Sensex to curtail outsized positions and frenzy in trading, according to three people aware of the matter.
The discussions of the Secondary Market Advisory Committee (SMAC) on Tuesday came after the Securities and Exchange Board of India's (Sebi) cracked down on US-based hedge fund Jane Street for alleged manipulation of Bank Nifty and Nifty to make outsized gains in options trading on these two indices.
Sebi in an interim order on 3 July said the gains came at the cost of losses borne largely by retail clients. Jane Street has deposited ₹4,844 crore in an escrow account in Sebi's favour to continue trading until the regulator completes its investigation in the matter. It has denied Sebi's allegations and said it will engage with the regulator.
Currently, Sebi stipulates clients should not cross a ₹1,500 crore end-of-day limit on a net basis and ₹10,000 crore on a gross level. There is no intraday limit. Net limit refers to the difference between the long and short options positions, while the gross limit aggregates the long and short positions. For example, if a client buys ₹100 crore worth of Nifty calls and sells ₹80 crore worth of Nifty puts, the net limit is ₹20 crore and the gross limit is ₹180 crore.
A broker, aware of the committee’s discussions, said while most clients adhere to the end-of-day limits on non-expiry days, they exceed this cap on expiry days as by market closing, the contract expires and the limit is redundant. "It (the committee’s proposal) is to prevent frenzy on expiry days that this proposal could have been discussed," he said.
At present, NSE Nifty options expire on Thursday every week, while BSE’s Sensex options are settled every Tuesday.
Apart from an intraday net exposure limit, surveillance measures like imposing a penalty on clients who routinely exceed the intraday limits were discussed, said one of the three people quoted earlier.
All three people quoted earlier spoke on the condition of anonymity.
Currently, exchanges only monitor the limits on an intraday basis and don't levy any penalty, only asking clients to show cause why they have taken outsized positions intraday.
However, there is a penalty for violating the end-of-day limit of ₹1,500 crore. This is a graded penalty of blocking margins of brokers proportionate to the excess above the limit. It is 1% , 5% and 10% block of broker margins for a month, depending on the frequency of the violations.
"The committee’s discussions dealt with imposing an intraday limit of ₹1500 crore on weekly options' expiry day, which is when volumes peak," said another person. "Also, surveillance and penalty for exceeding the exposure limits intraday were discussed."
However, Prakarsh Gagdani, chief executive at Torus Digital, sees this having very little impact on retail investors since the restriction will only apply at very large positions taken by a single client and 99% of traders won't be affected.
Trading on index options has become extremely popular, especially since the pandemic outbreak in 2020 and the imposition of higher margins for intraday cash market trading in 2019.
For instance, on market leader NSE, while index options' premium turnover compounded at 66% every year from ₹6.54 trillion in FY19 to ₹135.74 trillion in FY25, cash market turnover grew at a compounded rate of 17% to ₹201 trillion from ₹79.49 trillion over the same period.
Apart from these issues, aligning the calculation methodology of broker-level position limits with those at the client level was also discussed at SMAC. "All these are proposals, and whether they will be implemented, is for Sebi to decide," said the second person.
Narinder Wadhwa, managing director and chief executive officer of SKI Capital Services Ltd, said Sebi is considering introducing intraday position limits in index options trading to prevent any single participant from taking excessively large positions during market hours.
"For retail investors, this move could act as a protective measure by reducing the chances of extreme losses, as many individuals often take oversized speculative bets with limited capital," he said. "It may also improve overall market stability and ensure a level-playing field by curbing concentration of trades in the hands of aggressive players."
However, Wadhwa was skeptical about the flip side that active retail traders who rely on frequent entry-exit strategies may face reduced flexibility. "And lower trading volumes could affect liquidity and widen bid-ask spreads. Introducing intraday position limits in index options is likely to have a moderate dampening effect on market liquidity, though the extent will depend on how Sebi structures the framework.”
He added that the exact impact will depend on how Sebi defines the limits, whether hedged positions are treated differently, and how brokers implement these controls. "Overall, while the intent is investor protection and systemic stability, some active traders may view it as a restriction on trading opportunities," Wadhwa said.
According to Rajesh Palviya, head of research at Axis Securities, "the proposal is to keep tabs on the big traders, who generate huge volumes. If they are implemented, bid-ask spreads would widen, impacting retail participation as well, which would eventually shave off volumes."
Palviya is not a member of SMAC. Last year, Sebi tripled the contract size of index options and directed that no stock exchange can offer more than one index options for weekly expiry.
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