SEBI Open Interest Proposal: Delta-Based Limits and FIA Objections
Why in the news
A SEBI consultation paper that changes how open interest and position limits are measured drew strong objections from the Futures Industry Association (FIA), a global body representing foreign portfolio investors.
About open interest
- Open interest (OI) is the count of derivative contracts (futures or options) still open and unsettled.
- It tracks open positions, not the volume traded.
SEBI’s proposals
| Area | Current | Proposed |
|---|---|---|
| OI calculation | Simple sum of notional OI in futures and options | Delta-adjusted options positions added to futures OI |
| Position limits | Notional-based | Benchmarked to delta, which ranges from -1 to +1 and shows option price sensitivity |
| Trading hours | – | Pre-opening and post-closing sessions for derivatives, to improve price discovery |
| Non-benchmark index derivatives | – | New eligibility standards |
Concerns raised by FIA
- Operational complexity: constant recalculation raises error risk.
- Liquidity risk: frequent delta changes may push participants out, hurting liquidity and raising volatility.
- Distortions: shifting limits could cause unintended market distortions.
- Global practice: major markets such as Hong Kong and CME do not use delta-based OI.
- Strategies hit: index arbitrage and long options positions could face penalties without adding risk.
Limit debate
- SEBI proposes an end-of-day (EoD) limit of ₹1,500 crore instead of ₹500 crore.
- FIA says under a delta approach the EoD limit should be ₹7,500 crore.
- FIA notes the current system has no serious defaults and urges a review of global methods first.
Exam angle
- Delta range: -1 to +1.
- Regulator: SEBI; objector: Futures Industry Association.
- Related terms: OI, EoD limit, price discovery.