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India’s securities regulator is imposing further restrictions on equity-index options trading in a bid to curb speculation, just months after its crackdown on Jane Street Group for alleged manipulation.
Starting Oct. 1, the Securities and Exchange Board will cap intraday positions at 50 billion rupees ($567 million) in futures-equivalent terms on a net basis, a circular published on the regulator’s website on Monday showed. Until now, there had been no limit.
The measures are the latest in a string of curbs aimed at cooling India’s options boom and checking alleged market manipulation. In July, SEBI temporarily banned Jane Street, alleging the US trading giant manipulated an index of bank stocks to favor its options wagers.
The new framework would facilitate market making activity on all trading days while “putting a check on any outsized intraday position on expiry day” and ensuring orderly trading, the Mumbai-based regulator said.
SEBI has retained a position limit of 100 billion rupees on a gross basis in both long and short trades in index options that came into effect July 1. On contract expiry days, breaching position limits will lead to penalties or surveillance deposits starting Dec. 6, the regulator said.
“The limit looks very rational in the overall context of recent market developments,” said Tejas Shah, head of derivatives trading at Equirus Securities. “The basic idea is to avoid excessive speculation and volatility that we have now become accustomed to on expiry days,” he said.
Intraday limits were proposed by the regulator in a discussion paper in February to strengthen risk monitoring. But in March, the Futures Industry Association, an industry body for global derivatives, came out in opposition to SEBI’s plan.
FIA said that any delta-adjusted position limits — delta being a risk measure that estimates the change in a derivative’s price relative to that of its underlying security — during the trading day should be set at 75 billion rupees to avoid stifling market makers.
In May, SEBI announced new position limits based on gross exposure calculated in terms of delta, and decided to drop the intraday limits after the backlash.
A key element of SEBI’s order against Jane Street, a US proprietary trading firm, included billions of dollars in options positions traded on weekly expiry days that SEBI said the company reversed before closing.
Jane Street denied the claims and told employees in a memo that its strategy was a basic index arbitrage, and it was exploring all legal options. SEBI lifted all trading curbs on the firm after it complied with an order to deposit 48.4 billion rupees in what it claimed were “illegal gains” in an escrow account with a local bank.
(Updates with analyst comment in sixth paragraph.)
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