The Securities and Exchange Board of India (SEBI) has issued final norms regarding the monitoring of intraday positions in index derivatives, offering some relief to traders. While the exchanges will monitor intraday positions, breaching the existing position limits will not immediately result in penalties.

Key Highlights of the New Norms

• Intraday Monitoring: Starting April 1, 2025, stock exchanges are mandated to monitor position limits for equity index derivative contracts on an intraday basis, in addition to the existing end-of-day (EOD) monitoring.
• Number of Snapshots: Exchanges must take a minimum of four position snapshots during the trading day. The timing of these snapshots should be randomly selected within pre-defined time windows. Exchanges can increase the number of snapshots beyond the minimum requirement.
• No Penalties for Breaches (Initially): While intraday breaches will be monitored and communicated to clients/trading members for risk monitoring, SEBI has clarified that there will be no penalties for breaching these limits until further notice. This is a temporary waiver to allow market participants time to adjust to the new system.
• Standard Operating Procedure (SOP): SEBI has directed the BSE and NSE to jointly prepare a standard operating procedure (SOP) to inform market participants about the monitoring of notional position limits intraday. The exchanges will also have to intimate clients/trading members about the breaches for their risk monitoring.

Rationale Behind the Move

SEBI's decision to introduce intraday monitoring aims to enhance surveillance mechanisms for stock exchanges and clearing corporations. This move is intended to strengthen market risk management and improve trading efficiency.

Industry Concerns and SEBI's Response

Several industry associations, such as the Association of National Exchanges Members of India (ANMI), the Bombay Brokers Forum (BBF), and the Commodity Participants Association of India (CPAI), have raised concerns regarding the readiness of the industry for these changes.

Their primary concerns revolve around the fact that stock brokers and their clients are still in the process of developing the necessary systems to comply with SEBI's proposed delta-based or futures-equivalent limits for index derivatives. Implementing systems for monitoring notional position limits during the day could put additional strain on market participants in the interim, particularly as higher intraday limits have been proposed compared to current end-of-day limits.

SEBI acknowledged these concerns, explaining that implementing systems for monitoring notional position limits during the day could put additional strain on market participants in the interim. The regulator's consultation paper, dated February 24, 2025, proposes higher intraday limits compared to end-of-day limits, which is not the case with the existing position limit framework. Implementing systems based on current limits may become obsolete once new regulations are finalized.

Impact and Way Forward

The introduction of intraday position limit monitoring represents a significant regulatory shift in India's securities market. While the industry may face initial challenges in adapting to these changes, market participants are expected to leverage technology to ensure smooth compliance. SEBI's decision to temporarily waive penalties for intraday breaches provides a crucial buffer period for stakeholders to fine-tune their systems.

These new guidelines also outline position limits for index derivatives. For index options, the end-of-day limits are set at Rs 500 crore (net) and Rs 1,500 crore (gross), while the intraday limits are Rs 1,000 crore (net) and Rs 2,500 crore (gross). For index futures, the end-of-day limit has been increased from Rs 500 crore to Rs 1,500 crore, with an intraday limit of Rs 2,500 crore. These limits would apply to all market participants, including FPIs, mutual funds, traders, and clients, ensuring a standardized framework.