The Indian financial markets are in a constant state of evolution, and the Securities and Exchange Board of India (SEBI), the country’s primary market regulator, is at the forefront of this transformation. In a bid to enhance market stability, protect retail investors, and align with global best practices, SEBI has introduced a slew of new regulations in 2025, particularly impacting the Futures and Options (F&O) segment and the mutual fund industry. These changes, many of which came into effect in October 2025, have significant implications for traders and investors alike. This article provides a comprehensive overview of these new rules, what they entail, and how they might affect your trading and investment strategies.
One of the most significant changes introduced by SEBI revolves around the Market-Wide Position Limits (MWPL) for single-stock derivatives. Previously, the MWPL was calculated based on the number of shares, which could be a somewhat static measure. The new regulations, however, link the MWPL to both the free-float market capitalization of the stock and its average daily cash delivery volume (ADDV). The MWPL will now be the lower of either 15% of the free-float of the stock or 65 times the ADDV. This dynamic approach aims to ensure that the derivatives market for a particular stock does not grow disproportionately to its underlying liquidity in the cash market, thereby reducing the risk of market manipulation and excessive speculation. For traders, this could mean that position limits for certain stocks might change more frequently than before, requiring them to be more vigilant about their open positions to avoid breaches.
In addition to the revised MWPL, SEBI has also introduced entity-level position limits for individual traders, brokers, and proprietary trading desks. This is a crucial step towards curbing the concentration of risk in the hands of a few large players. The new framework sets an intraday net position limit of ₹50 billion for each entity in index options, a significant increase from the previous end-of-day limit of ₹15 billion. Furthermore, the total intraday exposure is capped at ₹100 billion, applied separately to both long and short positions. To enforce these limits, stock exchanges will conduct at least four random checks throughout the trading day, including one during the peak trading hours between 2:45 PM and 3:30 PM IST. Any breach of these limits will attract penalties and require the entity to provide a justification for their positions. This move is expected to bring more discipline to the market and prevent any single entity from building up positions that could pose a systemic risk.
The new regulations also place a strong emphasis on real-time monitoring of derivative contracts. Instead of relying on end-of-day open interest (OI) data, SEBI now wants measures that reflect the real exposure of derivative contracts in relation to cash market movements. The idea is to track the “delta” and the real exposure of derivative contracts, not just the number of outstanding contracts. This will provide a more accurate picture of the risk in the system at any given point in time and allow for more timely interventions if needed. For traders, this increased transparency can be beneficial, as it can help them make more informed decisions based on a better understanding of the market dynamics.
SEBI has also tightened the eligibility criteria for stocks to be included in the F&O segment. For an index to have a derivative contract, at least 80% of its constituents must be individually eligible for derivatives trading. This is a move to ensure that derivative contracts are available only for stocks that have sufficient liquidity and depth in the underlying cash market. This could lead to a more robust and less volatile derivatives market in the long run.
Shifting our focus to the mutual fund industry, SEBI is currently reviewing the cap on the fees that mutual funds can pay to brokerages. This is a significant development for the mutual fund industry, as brokerage fees are a major component of the total expense ratio (TER) of a mutual fund, which is the fee that investors pay to the asset management company (AMC) for managing their money. The regulator had earlier proposed a cap on these fees, but is now open to revising it after receiving feedback from the industry. A higher cap on brokerage fees could mean higher costs for investors, but it could also allow fund houses to access better research and execution services from brokers, which could potentially lead to better returns. The final decision on this matter will be closely watched by both the industry and investors.
These new regulations from SEBI are a part of a broader effort to make the Indian financial markets safer, more transparent, and more efficient. While some of these changes might require traders and investors to adapt their strategies in the short term, they are expected to have a positive impact on the overall health and stability of the market in the long run. It is crucial for all market participants to stay updated on these regulatory changes and understand their implications to navigate the evolving market landscape successfully.