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What are the position limits in Derivative Products?

The position limits specified are:

Client / Customer level position limits

For index-based products there is a disclosure requirement for clients whose position exceeds 15 per cent of the open interest of the market in index products.

For stock-specific products the gross open position across all derivative contracts on a particular underlying of a customer/client should not exceed the higher of - 1 per cent of the free float market capitalisation (in terms of number of shares) or 5 per cent of the open interest in the derivative contracts on a particular underlying stock (in terms of number of contracts). This position limits are applicable on the combine position in all derivative contracts on an underlying stock at an exchange. The exchanges are required to achieve client level position monitoring in stages.

Trading Member Level Position Limits

For Index products, the Trading Member position limits are Rs 100 cr or 15 per cent of the open interest whichever is higher. For stock-specific products the trading member position limit are at 7.5 per cent of the open interest or Rs 50 crore whichever is higher for derivative contract in a particular underlying at an exchange. It is also specified that once a member reaches the position limit in a particular underlying then the member shall be permitted to take only offsetting positions (which result in lowering the open position of the member) in derivative contracts on that underlying. In the event that the position limit is breached due to the reduction in the overall open interest in the market, the member shall be permitted to take only offsetting positions (which result in lowering the open position of the member) in derivative contract in that underlying and no fresh positions shall be permitted.

The position limit at trading member level are required to be computed on a gross basis across all clients of the Trading member.

Market-wide limits

There are no market wide limits for index products. However, for stock-specific products the market-wide limit of open positions (in terms of the number of underlying stock) on an option and futures contract on a particular underlying stock would be lower of - 30 times the average number of shares traded daily, during the previous calendar month, in the cash segment of the Exchange, or 10 per cent of the number of shares held by non-promoters i.e.10 per cent of the free float, in terms of number of shares of a company. It is further specified that when the total open interest in a contract reaches 80 per cent of the market-wide limit in that contract, the exchanges would double the price scan range and volatility scan range specified. The exchanges are required to continuously review the impact of this measure and take further proactive risk containment measures as may be appropriate, including, further increases in the scan ranges and levying additional margins.

Source: www.sebi.gov.in

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