SEBI Proposes New Position Limits Using Future Equivalent Measure

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  • Last Updated on 8 December, 2025

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SEBI Future Equivalent Position Limits

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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Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied