Dec 4 (Reuters) – India’s market regulator on Thursday proposed changes to how limits on equity index option positions are set, moving away from using the total contract value to a method that better reflects the actual risk of the positions.
The Securities and Exchange Board of India (SEBI) said moving to delta-based limits for equity index options will better capture the price sensitivity and risk of open positions than notional-value caps.
The changes are also aimed at aligning limits for trading members with those applied at the client level, and at preventing any single broker from holding an outsized share of market positions when overall activity is thin.
Delta measures how much the value of an options portfolio changes when the underlying asset moves by 1 rupee; delta-based limits use this sensitivity to calibrate exposure, SEBI said in a consultation paper.
Under the proposal, trading members would be allowed to hold up to 15% of total market-wide positions in equity index options on a delta-adjusted basis.
Position limits for index futures would remain unchanged, with trading members continuing to operate under the existing ceiling of 75 billion Indian rupees ($835.06 million) or 15% of total market-wide open interest, SEBI said.
To preserve flexibility when market activity is low, the regulator also suggested a slab-based set of absolute limits.
Depending on the average daily turnover in a given quarter, the cap for the following quarter would range from 20 billion rupees to 120 billion rupees.
SEBI has sought comments from the public by December 26.
($1 = 89.8140 Indian rupees)
(Reporting by Nishit Navin in Bengaluru; Editing by Tasim Zahid)
