SEBI Proposes New Position Limits Using Future Equivalent Measure

Consultation Paper; Dated: 04.12.2025

1. Introduction

The Securities and Exchange Board of India (SEBI) has proposed a significant change in the way trading member position limits are determined in the equity index derivatives segment. The proposal introduces the Future Equivalent (FE) measure as a more accurate and risk-sensitive method of calculating exposure. This shift aims to strengthen market stability, enhance transparency, and refine the risk management framework for derivative trading.

2. Need for Revising Position Limit Framework

Under the current system, position limits are calculated using notional contract values, which do not always reflect the true risk exposure of trading members. With increasing participation, rising contract complexity, and expanding derivative volumes, SEBI recognised the need for a more robust methodology. The Future Equivalent measure is designed to offer a standardized, risk-adjusted approach, ensuring position limits better align with market realities.

3. Understanding the Future Equivalent (FE) Measure

The Future Equivalent approach converts open positions in index derivatives into a uniform metric based on their risk equivalence to futures contracts. This allows for a clearer assessment of the aggregated exposure of trading members across futures and options. By normalising positions through a unified measure, FE helps exchanges and regulators more accurately monitor concentration risks and prevent market-wide disruptions stemming from excessive exposures.

4. Impact on Trading Members and Market Operations

If implemented, the proposal will lead to revised position limit thresholds for brokers, institutions, and proprietary trading desks. Trading members may need to recalibrate their hedging strategies, margining models, and risk-monitoring systems to comply with FE-based calculations. The change is expected to reduce systemic risks, prevent excessive leveraging, and strengthen market resilience, ultimately benefiting investors and maintaining orderly trading conditions.

5. Conclusion

SEBI’s proposal to adopt the Future Equivalent measure for calculating position limits marks a progressive step toward modernising India’s derivatives risk framework. By replacing traditional methods with a more precise and risk-sensitive system, SEBI aims to ensure greater transparency, stronger market safeguards, and improved regulatory oversight. Stakeholders will now await further consultation and final approval before transitioning to the new methodology.

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