Index Options Gross Limit: SEBI Proposal and Broker Pushback
Why in the news
Brokers and institutions pushed back against SEBI’s proposed gross limit for index options, and the regulator signalled it would review the plan.
Basics
- Index option: a derivative giving the right, not the obligation, to buy or sell an index value at a set exercise price; no actual shares change hands.
- Bid-ask spread: gap between the highest price a buyer offers (bid) and the lowest a seller accepts (ask).
- Delta: change in option price per one-point move in the underlying; if Nifty moves Re.1 and the option 50 paise, delta is 0.5.
Feedback received
- Close to 1,000 responses, mostly against the limit.
- Delta-based open interest (OI) calculation drew a welcome.
- SEBI will study comments and may change the proposal.
Industry concerns
| Group | Worry |
|---|---|
| Brokers | Lower liquidity, wider spreads, higher client costs; most opposed a ₹1,500 crore end-of-day gross limit |
| Large funds | Cannot hedge portfolios effectively |
| Prop desks, HFT firms, FPIs | Obstacle to trading; volumes could fall sharply, though estimates differ |
SEBI’s reasoning
Risk in options comes from delta, volatility and time, and SEBI did not want to complicate matters by capping each parameter.
Exam angle
- Regulator: SEBI.
- Terms: gross limit, delta, open interest, bid-ask spread.