Key Highlights
- SEBI (Securities and Exchange Board of India) has released a new framework for Futures & Options (F&O) risk monitoring.
- It includes a change in the calculation method for Open Interest (OI).
Relevance : GS 3(Economy, Trade)
Major Reform: Delta-Based OI Calculation
- The OI value will now be computed on a delta-based rather than a notional-value-based approach.
- Delta measures price sensitivity of an option relative to the underlying asset.
- This change introduces a more accurate and risk-sensitive method for assessing positions.
Purpose and Benefits
- Aims to improve market transparency and integrity.
- Helps prevent manipulation of open interest by traders using artificial positions.
- Ensures better alignment of margin requirements and position limits with real risk exposure.
Impact on Traders and Market
- Position limits for F&O contracts have been increased under the new framework.
- Traders with low-risk positions may now have greater flexibility.
- Will require brokers and institutions to upgrade systems to incorporate delta-based metrics.
Regulatory Significance
- Part of SEBI’s broader effort to:
- Modernize derivatives market oversight.
- Mitigate systemic risk in capital markets.
- Reflects a move toward international best practices in risk-based regulation.
