SEBI Proposes New Risk Metrics For Equity Derivatives: Will It Impact Small Investors? – News18
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Furthermore, the proposal to revise index derivatives position limits is under consideration to reduce manipulation risks.
SEBI proposes for a new risk metrics for equity derivates.
The Securities and Exchange Board of India (SEBI) has proposed several measures to enhance trading convenience and strengthen risk monitoring in the equity derivatives market. The capital market regulator proposes shifting from notional terms to a Delta-based approach in open interest (OI) calculation for its more accurate reflection of market exposure.
Furthermore, the proposal to revise index derivatives position limits is under consideration to reduce manipulation risks.
Will New Risk Metric Impact Small Investors?
However, SEBI clarified in the paper that these changes will not materially affect small investors beyond reducing the frequency of stocks entering the ban period, thereby simplifying their trading experience.
SEBI’s consultation paper also proposes revising Market Wide Position Limits (MWPL) by linking them to cash market activity. It is also introducing pre-open and post-closing sessions for derivatives and adjusting position limits for single stocks and index derivatives.
Key Proposals & Additional Measures:
1. Intraday Monitoring: To safeguard market integrity and limit settlement risk from intraday spikes in Futures and Options OI, Clearing Corporations would perform intraday monitoring at least four random times during the trading session.
2. Exposure Limits for Mutual Funds and AIFs: Current Mutual Fund and Alternative Investment Funds exposure limits would be recalibrated to align with these new Futures and Options calculations.
3. Criteria for the introduction of derivatives: SEBI proposes to add additional criteria for introducing derivatives on non-benchmark indices:
1. Minimum of 14 constituents. 2. The top constituent’s weight is less than or equal to 20%. 3. The combined weight of the top three constituents is less than or equal to 45%. 4. All other constituents’ individual weights must be lower than those of the higher-weighted constituents (i.e., a descending weight structure).
