Big F&O shake-up: SEBI introduces FutEq OI, tweaks ban rules, position limits
SEBI has announced a sweeping overhaul of its equity F&O framework, introducing a new Future Equivalent (FutEq) method to assess open interest more accurately. The move aims to curb market manipulation, tighten risk checks, and realign derivatives exposure with cash market liquidity.
- May 29, 2025,
- Updated May 29, 2025 8:14 PM IST
The Securities and Exchange Board of India (SEBI) has announced a comprehensive overhaul of its framework governing the equity Futures and Options (F&O) segment. Among the major changes, SEBI is now employing a Future Equivalent (FutEq) method to measure open interest, replacing the traditional notional open interest method.
This shift is aimed at providing a more accurate assessment of risk by considering the price sensitivity of each contract. The new methodology is expected to prevent artificial imposition of ban periods on stocks, as it will offer a clearer risk picture than the existing system. SEBI's circular announced that exchanges have already begun sharing data based on this new approach.
SEBI's regulatory changes extend to the market-wide position limit (MWPL), which will now be tied to cash volume and free float. MWPL, a critical mechanism to curb excessive speculation, will be determined by the lesser of 15% of free float or 65 times the cash volume across exchanges.
This adjustment aims to eliminate potential market manipulation by aligning derivatives risk with the underlying cash market liquidity. "Tying the MWPL to cash market delivery volume will reduce the potential manipulation and better align derivatives risk with the underlying cash market liquidity," SEBI clarified. These new MWPL definitions are set to take effect on 1 October 2025.
In a crucial move, SEBI will permit trades in single stocks even during ban periods, as long as they reduce the risk of the portfolio. This means that any position created subsequent to a stock entering a ban period must lead to a reduction in FutEq OI by the end of the trading day. SEBI stated, "Subsequent to its entry in the ban period, should result in reduction of FutEq OI on end of day basis. For instance, if delta position is (+10) or say (-10) at the end of day 1, then it could be reduced till 0 by end of day 2." This rule will be implemented from 1 October 2025.
The watchdog will also introduce intraday monitoring of MWPL utilisation for single stocks, effective 3 November 2025. Clearing corporations will conduct these checks at least four random times throughout the trading session. If breaches occur, exchanges will take necessary actions, such as imposing additional surveillance margins or conducting further checks. SEBI's circular specified, "Clearing corporations will perform intraday monitoring of FutEq OI at least four random times during the trading session."
Position limits for Index Futures and Options have been enhanced, with a net end-of-day FutEq OI limit for options now set at Rs 1,500 crore and a gross limit at Rs 10,000 crore per PAN. For Index Futures, position limits will be category-specific, with limits either being 15% of futures OI or Rs 500 crore for FPI Category I and other institutional participants. This will start from 1 July 2025.
Furthermore, SEBI has set eligibility criteria for derivatives on non-benchmark indices, requiring a minimum of 14 constituents with capped weightages for top constituents. This measure is effective from 3 November 2025. For the single stock's position limits, individuals will face a 10% MWPL cap, while proprietary brokers have a 20% trading limit. FPIs and brokers have a 30% cap.
SEBI is also extending pre-open sessions to F&O to enhance trading convenience and liquidity management. "Like the cash market there will be Pre-open session for F&O also," SEBI announced, stating that this will be mirrored with the cash market’s session structure. This change will be effective from 6 December 2025.
Additionally, SEBI has advised that Mutual Funds and Alternative Investment Funds should calculate options exposure on a FutEq basis. This requirement aligns with SEBI's various measures to manage F&O trading activities, such as adjusting lot sizes and monitoring position limits intraday. Separate circulars will be issued for these calculations by SEBI's respective departments.
The Securities and Exchange Board of India (SEBI) has announced a comprehensive overhaul of its framework governing the equity Futures and Options (F&O) segment. Among the major changes, SEBI is now employing a Future Equivalent (FutEq) method to measure open interest, replacing the traditional notional open interest method.
This shift is aimed at providing a more accurate assessment of risk by considering the price sensitivity of each contract. The new methodology is expected to prevent artificial imposition of ban periods on stocks, as it will offer a clearer risk picture than the existing system. SEBI's circular announced that exchanges have already begun sharing data based on this new approach.
SEBI's regulatory changes extend to the market-wide position limit (MWPL), which will now be tied to cash volume and free float. MWPL, a critical mechanism to curb excessive speculation, will be determined by the lesser of 15% of free float or 65 times the cash volume across exchanges.
This adjustment aims to eliminate potential market manipulation by aligning derivatives risk with the underlying cash market liquidity. "Tying the MWPL to cash market delivery volume will reduce the potential manipulation and better align derivatives risk with the underlying cash market liquidity," SEBI clarified. These new MWPL definitions are set to take effect on 1 October 2025.
In a crucial move, SEBI will permit trades in single stocks even during ban periods, as long as they reduce the risk of the portfolio. This means that any position created subsequent to a stock entering a ban period must lead to a reduction in FutEq OI by the end of the trading day. SEBI stated, "Subsequent to its entry in the ban period, should result in reduction of FutEq OI on end of day basis. For instance, if delta position is (+10) or say (-10) at the end of day 1, then it could be reduced till 0 by end of day 2." This rule will be implemented from 1 October 2025.
The watchdog will also introduce intraday monitoring of MWPL utilisation for single stocks, effective 3 November 2025. Clearing corporations will conduct these checks at least four random times throughout the trading session. If breaches occur, exchanges will take necessary actions, such as imposing additional surveillance margins or conducting further checks. SEBI's circular specified, "Clearing corporations will perform intraday monitoring of FutEq OI at least four random times during the trading session."
Position limits for Index Futures and Options have been enhanced, with a net end-of-day FutEq OI limit for options now set at Rs 1,500 crore and a gross limit at Rs 10,000 crore per PAN. For Index Futures, position limits will be category-specific, with limits either being 15% of futures OI or Rs 500 crore for FPI Category I and other institutional participants. This will start from 1 July 2025.
Furthermore, SEBI has set eligibility criteria for derivatives on non-benchmark indices, requiring a minimum of 14 constituents with capped weightages for top constituents. This measure is effective from 3 November 2025. For the single stock's position limits, individuals will face a 10% MWPL cap, while proprietary brokers have a 20% trading limit. FPIs and brokers have a 30% cap.
SEBI is also extending pre-open sessions to F&O to enhance trading convenience and liquidity management. "Like the cash market there will be Pre-open session for F&O also," SEBI announced, stating that this will be mirrored with the cash market’s session structure. This change will be effective from 6 December 2025.
Additionally, SEBI has advised that Mutual Funds and Alternative Investment Funds should calculate options exposure on a FutEq basis. This requirement aligns with SEBI's various measures to manage F&O trading activities, such as adjusting lot sizes and monitoring position limits intraday. Separate circulars will be issued for these calculations by SEBI's respective departments.