SEBI’s new F&O limits could lead to downsizing for prop traders
The introduction of gross position limits in the derivatives segment by the market regulator may have significant repercussions for proprietary trading firms, including job losses and impacts on trading levies.
Proprietary firms, which employ 500-1,000 people each, may be forced to cut their workforce by 20-30% once the new norms are implemented. This could result in job losses for thousands of employees currently working on the prop desk.
The proposed gross position limits are expected to discourage traders from hedging their positions, limit margin deployment, and restrict capital utilization. Traders argue that these limits infringe on their fundamental rights and hinder their ability to deploy funds within the existing margining system.
Under the new proposals, intraday limits for index options will be set at ₹1,000 crore on a net basis and ₹2,500 crore on a gross basis. End-of-day limits will be ₹500 crore and ₹1,500 crore, respectively, with similar revisions for index futures.
Many FPIs and large prop desks currently deploy capital in derivatives trading, with a significant portion in index options. If the new limits are imposed, this capital deployment could shrink by as much as 10%.
The introduction of gross position limits could also have a significant impact on trading levies, including Securities Transaction Tax (STT), GST, and stamp duty collections. It is estimated that these collections could drop by 40-50% if the new norms are implemented, leading to further revenue losses for the government.
Overall, the implications of SEBI’s new F&O limits are far-reaching, potentially reshaping the landscape of proprietary trading and impacting the financial markets in significant ways.
Published on March 14, 2025.
