FIA vs SEBI: Open Interest and Position Limit Row
Why in the news
The Futures Industry Association, a global derivatives body whose members include clearing corporations and FPIs, objected to SEBI’s planned overhaul of open interest (OI) measurement and position limits for index F&O.
SEBI’s proposal (24 February 2025)
- Aims: realign F&O with cash markets, cut stock bans, strengthen risk management.
- Changes: delta-adjusted OI calculation, review of market-wide position limits, and separate limits for single stocks and index derivatives.
FIA’s objections
| Issue | Concern |
|---|---|
| Liquidity | Wider bid-ask spreads, less institutional participation, thinner depth |
| Costs | Complex calculations raise operating and compliance costs |
| Volatility | Bigger price swings and instability |
| Manipulation | Inefficiency could ironically raise manipulation chances |
| Operations | Delta-adjusted OI is rare worldwide; error risk |
| Limit gaps | Large short-term out-of-the-money option positions may still be possible |
Likely impact by group
- Traders: higher costs, less flexibility.
- Market makers: liquidity strain, wider spreads.
- Retail: higher costs and risks.
- Institutions: may step back, hurting depth.
About open interest
Open interest is the count of outstanding, unsettled derivative contracts, tracking open positions rather than traded volume.
FIA’s suggestions
- Rethink the framework; use simple, globally accepted practices.
- Adopt an EOD net future equivalent cap of ₹7,500 crore.
Exam angle
- Terms: open interest, delta-adjusted OI, position limits.
- SEBI says its goal is to tie derivatives to cash-market activity and curb manipulation.