Udaipur, February 26, 2025 - The Securities and Exchange Board of India (SEBI) has proposed significant changes to the calculation method of Open Interest (OI) in the equity derivatives market. SEBI believes that by changing the calculation method, the practice of manipulating derivatives of stocks will be prevented thus lowering the frequency with which stocks enter the ban list.

According to a SEBI proposal, the current Notional Value method for calculating OI will be replaced with the Future Equivalent method. SEBI explained that under the existing Notional Value method, the total value of all Futures and Options Contracts is added without considering the actual market risk, which gives the impression that there has been excessive trading in a stock. This situation often leads to the stock being placed on the ban list, even when there is no significant risk involved.

In contrast, the proposed Future Equivalent method will calculate OI based on how actively the stock is involved in Contracts, rather than the total value. This approach will provide a more accurate picture of market risks and reduce unnecessary trading restrictions.

In the derivatives market, a stock is only placed on the ban list when its trading limit is breached. In such cases, traders can close their existing positions but are not allowed to take new positions in Futures and Options.

End-of-Day Limit

SEBI has also proposed raising the end-of-day limit for Index Futures from Rs 500 crore to Rs 1,500 crore. This will allow more flexibility and participation in the market, particularly by larger investors, while maintaining proper risk controls.

Again, the intraday limit for Index Futures has been proposed at Rs 2,500 crore to support market-making activities, improve liquidity and facilitate more efficient trading. This would ensure a more liquid and stable market environment with traders being able to hold larger positions throughout the day.

Pre-Open, Post-Closing Sessions

Another key proposal by SEBI is introducing pre-open and post-closing sessions for derivatives to enhance price discovery by allowing traders to place orders before the market opens and after it closes. This change seeks to improve the efficiency and transparency of the derivatives market. It would lead to more accurate and fair pricing of derivative contracts, lower volatility and provide flexibility for traders to adjust their positions in response to market scenario.