Traders Fear Hit on Volumes as Position Rule Set to Kick In

A regulatory measure that could hamper exchange trading volumes and increase costs of executing transactions looms over the market, even as its trading members and institutional investors hope that the regulator would consider deferring the rule at the last minute.

- Neha Joshi

Intraday monitoring of position limits to strengthen the index derivatives framework has to go live on 1 April. It's the sixth measure that the Securities and Exchange Board of India (Sebi) introduced in a staggered manner from 1 October.

A change of guard at Sebi has given market participants hope that the regulator would defer the rule until it decides on the implementation of a proposal for determining the position limits.

The rule will ensure that no trader or client exceeds the ₹500 crore net position limit during the day. Currently, traders exceed that threshold intraday, imparting liquidity and reducing the cost of executing transactions in the bargain, but bring down their positions to the mandated limit by end of trading day, say broking officials.

Traders fear that placing an intraday monitoring mechanism will bring down exchange volumes drastically. This will result in buy-sell quotes widening, increasing the cost of executing transactions and hurting retail investors eventually as derivatives markets have a nexus with cash markets, and vice versa.