Former Sebi WTM Ananth Narayan

The measures, meant to stop market manipulation, included altering the tactic of calculating limits on shoppers’ excellent positions, generally known as open curiosity (OI)—a measure of cash flowing into the market—and intraday monitoring of those limits.

“With the delta-based limits and intraday monitoring launched from July 2025, it’s solely honest that we assess their affect by way of the September quarter and past earlier than deciding additional actions,” Narayan informed Mint in an interview a day earlier than his time period as a whole-time Sebi member ended.

He sought to clear the air on hypothesis surrounding a difficulty that has turn out to be a speaking level throughout market circles—whether or not weekly Nifty and Sensex choices shall be discontinued in favour of longer-term contracts—ever since Sebi chair Tuhin Kanta Pandey first spoke about extending derivatives contract tenures throughout a Ficci occasion in August.

Narayan underscored that it was crucial for Sebi to tread the high quality line between a kind 1 error—guaranteeing unhealthy issues do not occur to buyers—and a kind 2 error—overzealous compliance, which ends up in throwing the newborn out with the bathwater.

Earlier, choices’ open curiosity was calculated notionally—primarily based on the overall variety of tons or contracts held, with out contemplating precise danger or publicity. The delta strategy, launched since July this 12 months, displays an possibility’s precise worth sensitivity to an underlying inventory index, such because the Nifty or Sensex, thereby figuring out a shopper’s true directional publicity.

Equally, the sentimental OI restrict—the surplus over and above a shopper’s precise hedging restrict—was elevated to a internet ₹1,500 crore from ₹500 crore earlier for choices. Sebi additionally launched a gross restrict of ₹10,000 crore, which sums up the shopper’s lengthy and brief publicity, that exchanges now monitor every day. This prevents disproportionately giant positional build-up relative to the underlying money market, which might create systemic dangers.

Narayan underscored that altering the calculation from a notional ₹500 crore was crucial as sure shoppers had been exploiting the sooner framework.

“Since 2020, participant limits had been measured on a “internet notional” foundation—however some gamers had been exploiting this framework, working large dangers whereas technically staying inside limits. We discovered situations of contributors carrying intraday index possibility exposures of ₹40,000–50,000 crore money equal, or much more, whereas reporting notional utilization under ₹500 crore. This was clearly unacceptable—it created systemic vulnerabilities and opened doorways for manipulation.”

Now, with the brand new type of calculation in use since July, Sebi will look at the affect on participation and on the imbalance between the derivatives and money market volumes, which, in notional phrases, was typically a whole bunch of instances bigger than the turnover within the underlying money market, defined Narayan.

Reforming F&O

Involved over the rising retail frenzy, particularly on choices expiry day, Sebi first set its sights on the derivatives phase in January 2023, mandating risk-based disclosures about derivatives throughout dealer buying and selling screens and functions.

Nonetheless, these disclosures did little, forcing Sebi since July final 12 months to suggest a number of measures after many rounds of consultations with market stakeholders. Key amongst them had been limiting the variety of weekly expiries to at least one per change from a number of expiries earlier and introducing an excessive loss margin on expiry day, which took impact since November final 12 months.

Nonetheless, with the retail frenzy persisting—a latest Sebi research discovered that just about a crore people buying and selling on F&O in FY25 suffered losses aggregating over ₹1 trillion, up from ₹86,728 crore in FY24—Sebi adopted the newest tightening measures from July this 12 months.

Along with assessing the affect of those measures on retail participation and volumes, Narayan stated Sebi continues to think about suggestions from market stakeholders on deepening the money market and growing liquidity in longer tenure derivatives contracts.

Deepening F&O, money segments

“Market suggestions means that margins on longer-term derivatives could also be extra conservative than vital. Maybe, margins on longer-term calendar and different spreads may be rationalised,” Narayan stated.

A calendar unfold includes the acquisition and sale of choices on the identical underlying asset however with totally different expiration dates. Based on Narayan, margins on the brief aspect are typically aggressive, making such methods inexpedient for speculators who tackle the chance that hedgers search to cowl themselves towards. These must be reviewed.

If longer-term choices turn out to be extra liquid, it might enhance hedging and retail funding exercise in such merchandise, topic to regulatory approval, stated Narayan, who himself was an ace bond dealer with banks like Citi and Customary Chartered, earlier than diving into academia after which becoming a member of Sebi from the SP Jain Institute of Administration & Analysis, the place he was affiliate professor.

“Greater liquidity in longer-term derivatives might present much-needed hedging avenues for actual cash buyers. It may possibly additionally enable funds to ponder long-term funding merchandise, together with capital-protected buildings, comparable to by investing a bit of the funds into authorities securities to guard the principal at maturity, and deploying the steadiness into long-term derivatives. All this may, in fact, be topic to an applicable regulatory framework,” he stated.

Nonetheless, he warned that if expiry-day index possibility volumes proceed to dwarf cash-market exercise, Sebi may must revisit the variety of expiries.

Moreover, he stated money markets might turn out to be deeper if the inventory lending and borrowing mechanism (SLBM)—which facilitates shorting of shares by contributors by way of borrowing them on curiosity from institutional buyers and excessive networth buyers (HNIs)—turns into extra investor-friendly and easy, akin to buying and selling in fairness. This might open alternatives for added returns to retail and institutional long-only buyers.

Not solely shopping for, but in addition promoting by way of mechanisms like SLBM, facilitates extra environment friendly worth discovery, in accordance with many market intermediaries.

Avoiding over-regulation

Narayan stated that Sebi could be conscious about no matter it does, recognising that exchanges, clearing firms, and brokers derive important revenues from F&O.

For context, fairness choices accounted for over three-fourths of NSE’s standalone transaction earnings, a key income stream for exchanges, at ₹3,123 crore in Q1FY26, with money and fairness futures accounting for the remainder.

“Due to this fact, reforms should not be abrupt or destabilizing with unintended penalties, and will keep away from kind 2 errors of over-regulation/ extreme intervention,” he stated.

“No matter Sebi does subsequent—or chooses to not do—I’m positive shall be guided by information, evaluation, and significant session,” stated Narayan.