SEBI’s New F&O Rules Explained (Effective October 2025)

The Securities and Exchange Board of India (SEBI) has introduced some major changes to the Futures & Options (F&O) segment in the Indian equity market, effective 1 October 2025.

These updates aim to reduce excessive speculation, align derivatives exposure with real market activity, and make the trading ecosystem more stable.

In this blog, let’s break down what these new rules mean for traders and investors, and how you can adjust your strategies accordingly.

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Key Changes in SEBI’s F&O Rules

Here’s a summary of the main updates:

1. Market-Wide Position Limit (MWPL) Revised

From October 1, 2025, the MWPL for each stock will be the lower of:

• 15% of the company’s free float, or
• 65 times the 3-month average cash delivery volume.

This replaces the old rule where MWPL was 20% of non-promoter shareholding.

➡️ Note: SEBI will now recalculate MWPL every quarter based on the last three months’ data.

Single-Stock Positions During Ban Period

If a stock enters a ban period in the F&O segment (when new positions are not allowed):

• Fresh positions will remain disallowed.
• Traders can reduce existing positions if open interest crosses 95% of MWPL.

This gives flexibility to manage ongoing trades without increasing exposure.

Intraday Monitoring and Exposure Caps

For index derivatives, SEBI has added tighter monitoring:

• Intraday net positions are capped at ₹5,000 crore per entity.
• Gross positions are capped at ₹10,000 crore.

Exchanges will take at least four random intraday snapshots of exposures each day.
If traders exceed these limits (especially on expiry days), penalties or surveillance deposits may apply.

Limits for Single-Stock Derivatives

Starting October 1, 2025, position limits for single-stock derivatives are as follows:

• Individual investors: Up to 10% of MWPL
• Proprietary brokers: Up to 20% of MWPL
• Foreign Portfolio Investors (FPIs) + brokers combined: Up to 30% of MWPL

These limits aim to prevent excessive concentration of positions among a few players.

Phased Rollouts and Complementary Measures

These new rules are part of a broader reform that started in May 2025, which included:

• New eligibility criteria for non-benchmark indices.
• Pre-open and post-close sessions for F&O (coming in December 2025).

What These Changes Mean for Traders and Investors

For Traders

• Lower exposure per stock: MWPL is now linked to free float and volume, which may reduce exposure in less liquid stocks.
• Tighter leverage: With stricter entity limits (10%, 20%, 30%), large speculative positions will face restrictions.
• Closer monitoring: More intraday checks mean you need to track your positions carefully to avoid penalties.
• Ban-period caution: Once a stock hits 95% of MWPL, no new positions can be taken. Stay alert to avoid being stuck.

For Investors

• Hedging flexibility: You can still reduce exposure during ban periods, which helps manage risk.
• Liquidity matters: Stocks with lower cash delivery volumes will now have tighter F&O limits.
• Focus on risk management: Higher regulatory oversight means disciplined position sizing is more important than ever.

Key Takeaways from Entri Fin Academy

Here are the most important points to remember:

1. Check MWPL regularly:
   MWPL is now based on 15% of free float or 65× cash delivery volume (whichever is lower).
2. Respect individual limits:
   Individual investors must stay under 10% of MWPL for each single stock.
3. Track stocks nearing ban periods:
   Avoid holding large open positions in stocks nearing 95% of MWPL.
4. Prefer liquid stocks:
   Stocks with strong free float and higher trading volumes will now be safer to trade.
5. Focus on risk control:
   Over-leveraging can lead to compliance issues or sudden penalties, plan your margins carefully.

Practical Tips for Traders

Before taking new F&O positions, consider these points:

• Check the stock’s free float and 3-month delivery volume.
• Calculate the MWPL using the formula:
  MWPL = min (15% of free float, 65 × average delivery volume).
• Stay within individual position caps.
• Reassess your hedging positions to ensure they remain within new limits.
• Avoid illiquid stocks; choose those with higher MWPL for easier entry and exit.
• Use stricter stop-losses and maintain adequate margins.
• Diversify across multiple stocks to spread exposure instead of concentrating risk.

Why SEBI Introduced These Changes

Here’s the reasoning behind SEBI’s decision:

• The F&O market has seen a surge in speculative trading, leading to disproportionate exposure in illiquid stocks.
• Large positions can distort prices and increase volatility.
• Linking MWPL to free float and trading volume ensures derivative exposure reflects real market liquidity.
• The 10–30% individual caps prevent concentration risk among large entities.
• Random intraday snapshots enhance transparency and discourage over-leveraged bets.

In short, SEBI wants to make India’s derivatives market more stable, transparent, and aligned with real demand and supply.

What to Watch in the Coming Months

1. Quarterly changes in MWPL:
   Since SEBI recalculates MWPL every three months, exposure limits for some stocks may change.
2. Stocks entering ban periods:
   Expect more frequent ban periods in illiquid stocks.
3. Impact on option pricing:
   Tighter derivative limits might increase volatility or option premiums.
4. Broker announcements:
   Stay updated with exchange circulars and broker notifications regarding new margin or surveillance rules.
5. Investor behaviour:
   With speculation limits rising, more investors may shift toward index derivatives or longer-term positions.

Conclusion

SEBI’s new rules for the Futures & Options (F&O) segment represent a major step towards a healthier and more transparent derivatives market.

For traders, it means adjusting to tighter exposure and focusing on liquidity.
For investors, it means safer markets with better alignment between derivatives and the cash market.

The key is to stay informed, monitor your positions closely, and follow disciplined risk management. Those who adapt early will be better prepared to thrive in this new regulatory landscape.