On May 29, 2025, the Securities and Exchange Board of India (SEBI) introduced a series of major regulatory changes for the equity Futures and Options (F&O) segment. Aimed at safeguarding investor interests and enhancing market stability, these measures focus on increasing transparency, strengthening risk management, and protecting retail investors.
Let’s break down these new regulations and understand what they mean for investors.
Why Were the New Rules Needed?
According to SEBI data, retail participation in India’s derivatives market has surged in recent years. However, a majority of retail investors have faced significant losses in equity derivatives. Over the past three financial years, nearly 93% of retail traders incurred average losses of Rs 2 lakh per person. These concerns prompted SEBI to introduce the new framework — not to ban F&O entirely, but to ensure investor awareness and safety.
Key Highlights of SEBI’s New Rules
Changes to Market-Wide Position Limit (MWPL)
SEBI has revised the MWPL rules for F&O contracts. The open interest limit for any stock will now be the lower of either 15% of its free float or 65 times its average daily delivery value (ADDV) over the past three months. The minimum threshold is set at 10% of the free float. This rule will come into effect from October 1, 2025, and aims to better align derivatives exposure with liquidity in the underlying cash market.
Position Management During Ban Periods
When a stock’s Futures Equivalent Open Interest (FutEq OI) exceeds 95% of its MWPL, it enters a ban period. Under the new rules, investors can only reduce existing positions during this time — new positions are not allowed. Furthermore, switching from long to short (or vice versa) is prohibited. This change, effective from October 1, 2025, is intended to minimise volatility during ban periods.
New Limits for Index Derivatives
SEBI has also introduced new position limits for index derivatives. For index options, the net FutEq OI is capped at Rs 1,500 crore and gross FutEq OI (including both long and short positions) at Rs 10,000 crore. For index futures, FPI Category I, mutual funds, and clients are allowed 15% of open interest or Rs 500 crore (whichever is higher). For FPI Category II (individuals/family offices), the cap is 5% or Rs 500 crore. These rules will be enforced from July 1, 2025.
Intraday Monitoring of MWPL
Stock exchanges will now be required to check MWPL utilisation at least four times a day. If open interest exceeds the set limit, additional margin requirements or surveillance actions may be triggered. This rule, effective from November 3, 2025, aims to preserve market integrity and reduce settlement risks.
New Criteria for Non-Benchmark Indices
SEBI has set new eligibility norms for non-benchmark indices to be included in the derivatives segment. These indices must have at least 14 constituents, with no single stock accounting for more than 20% of the index weight. Additionally, the top three stocks combined should not exceed 45% of the index. This rule will apply from November 3, 2025, and is designed to curb manipulation.
Introduction of Pre-Open Session in F&O
SEBI has announced the launch of a pre-open session in the F&O market, similar to that in the cash segment. This session will apply to current-month futures contracts, including both single stocks and indices. In the last five trading days before expiry, the session will extend to next-month contracts due to liquidity rollover. This change will come into force from December 6, 2025.
Position Creation in Single Stocks During Ban Periods
SEBI will permit trading in single stocks during a ban period if it helps reduce overall portfolio risk. According to SEBI, post-ban trades must lead to a decrease in FutEq OI by the end of the trading day.
For instance, if the delta position is +10 or -10 at the end of Day 1, it should be brought down to 0 by the end of Day 2. Merely changing the sign of the delta value (e.g., from positive to negative) will not be considered a reduction. Also, passive increases in FutEq OI due to price fluctuations will not be treated as violations. This rule will be applicable from October 1, 2025.
Impact on Investors
These new guidelines will have wide-ranging implications. For retail investors, stricter MWPL and position limits will offer greater protection from excessive speculation. Enhanced intraday monitoring and improved transparency through FutEq OI calculations will help reduce the scope for market manipulation. On the other hand, institutional investors will benefit from increased flexibility due to higher exposure limits in index futures.
Wrapping Up
SEBI’s new regulatory framework marks a significant step toward creating a safer and more stable F&O ecosystem. Investors must familiarise themselves with these changes to navigate the derivatives market wisely and mitigate risks. Ultimately, these reforms aim not only to protect investors but also to support the market’s long-term growth trajectory.
*The article is for information purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
