SEBI Mandates Intraday Monitoring Of Index Derivative Limits From April 1, Removes Penalties

The Securities and Exchange Board of India (SEBI) has introduced a new rule for stock exchanges, starting April 1, 2025. From this date, stock exchanges must start keeping an eye on how much traders are investing in index derivatives throughout the day. However, SEBI has clarified that if traders exceed the existing limits during the day, they will not face any penalties for now. Moreover, these breaches will not be considered violations until SEBI gives further instructions.

How Will This Work?

SEBI has asked stock exchanges to create a clear set of guidelines (a Standard Operating Procedure or SOP) explaining how they will track these investments during the day. If a trader exceeds the limit, the exchanges must notify them so they can manage their risks accordingly.

Background Of SEBI's Decision

This new announcement follows an earlier SEBI circular on the same topic, issued last year. However, some industry groups, such as ANMI, BBF, and CPAI, were not happy with the decision. They raised concerns about how this rule would work in real-time and whether trading firms would have the right systems in place to handle the new requirements.

Details Of SEBI's Circular

In its circular dated December 30, 2024, SEBI stated that, along with the usual end-of-day checks, stock exchanges must also monitor the position limits for index derivatives multiple times during the day, starting April 1, 2025.
Stock exchanges must take at least four random snapshots of traders' positions at different times each day. These snapshots will help track any unusual activity and ensure compliance with the rules. While there will be no penalties for now, SEBI has indicated that in the future, breaches of these intraday limits could also result in penalties, just like breaches at the end of the day.

Industry Concerns And Challenges

Several industry associations have raised concerns about this new rule. They argued that stockbrokers and their clients might not yet have the necessary technology to monitor their investments throughout the day. They also pointed out that SEBI is already working on a new system that will introduce different limits based on the type of trade (delta-based or futures equivalent limits). This system was discussed in SEBI's consultation paper dated February 24, 2025.

Traders worry that implementing the new monitoring system now, while another new system is already being planned, could create unnecessary challenges. For example, the proposed system will allow higher intraday limits than the end-of-day limits, which is not the case under the current rules. This means that the technology built today might become outdated soon when the new system comes into effect.

What Happens Next?

For now, traders and brokers need to prepare for these intraday checks, even though there will be no penalties. SEBI may introduce stricter rules in the future once it finalizes its new framework. Market participants will have to stay updated and adapt to these changes as they come.