India’s Derivatives Regulatory Shift and Its Implications for Global Market Makers

India’s derivatives market, a cornerstone of global capital flows, is undergoing a seismic regulatory shift. The Securities and Exchange Board of India (SEBI) has introduced stringent rules to monitor intraday positions in equity index derivatives, effective October 1, 2025. These include a ₹5,000 crore net intraday position limit for index options and a ₹10,000 crore gross exposure cap, enforced through four random position snapshots daily, including one during peak trading hours (2:45 PM–3:30 PM) [1]. Such measures aim to balance flexibility for market participants with robust risk management, while preventing systemic vulnerabilities.

For global market makers, these changes signal a recalibration of operational strategies. The elevated intraday limits—higher than end-of-day thresholds—reflect SEBI’s intent to accommodate liquidity needs without stifling trading activity [2]. However, the requirement for real-time compliance, coupled with penalties for breaches (e.g., mandatory justifications for trades exceeding thresholds), demands advanced technological infrastructure. This is particularly critical for non-bank trading firms, which lack the capital buffers of traditional banks but must now navigate a landscape where regulatory scrutiny is both granular and unrelenting [3].

Non-bank entities are responding with AI-driven RegTech solutions. Zerodha, India’s largest brokerage, has integrated machine learning into its trade surveillance systems to detect anomalies like insider trading, aligning with SEBI’s transparency mandates [1]. Similarly, FinBox leverages AI for credit underwriting and risk assessment, enabling non-bank firms to automate compliance while maintaining profitability [5]. These tools not only streamline reporting but also reduce false positives in transaction monitoring, a key challenge in high-volume derivatives trading [4].

The Reserve Bank of India (RBI) has further amplified this trend by mandating digital infrastructure upgrades, such as the Unified Lending Interface (ULI), to reduce operational costs and enhance transparency [3]. For instance, the RBI’s Master Direction on Electronic Trading Platforms (ETPs) requires real-time trade dissemination and secure data retention for a decade, pushing firms to adopt cloud-based solutions [3]. This aligns with broader global shifts toward AI-powered compliance, where 90% of financial transactions are now monitored algorithmically, reducing false positives by up to 40% [4].

Yet, the stakes are high. The IndusInd Bank derivatives crisis of early 2025, which resulted in a ₹1,500 crore loss due to irregularities in its derivatives portfolio, underscores the risks of inadequate risk management [4]. In response, the RBI has initiated a sector-wide review of derivative positions, emphasizing the need for robust frameworks. Non-bank firms, lacking the systemic importance of banks, must now prove their resilience through proactive adaptation.

The implications for global market makers are twofold. First, India’s regulatory environment is becoming a proving ground for AI-driven compliance. Firms that integrate these technologies now will gain a competitive edge in markets where speed and accuracy are paramount. Second, the restructuring of equity indices like Nifty Bank and Bankex—proposed to prevent manipulation—will require market makers to recalibrate hedging strategies and liquidity provision models [4].

In conclusion, India’s derivatives regulatory shift is not merely a compliance burden but a catalyst for innovation. Non-bank trading firms that embrace AI and RegTech will not only survive but thrive in this new paradigm, setting benchmarks for global market makers. As SEBI and RBI continue to tighten oversight, the ability to adapt technologically will define the next era of derivatives trading in India.

**Source:[1] India markets regulator issues new rules for monitoring intraday derivative positions
https://www.reuters.com/sustainability/boards-policy-regulation/india-markets-regulator-issues-new-rules-monitoring-intraday-derivative-2025-09-02/[2] Sebi to tighten intraday rules for index options from October 1
https://m.economictimes.com/markets/stocks/news/sebi-to-tighten-intraday-rules-for-index-options-from-october-1/articleshow/123646246.cms[3] The Financial Services Bulletin
https://www.nishithdesai.com/NewsDetails/15415[4] IndusInd Saga 2025: A Wake-Up Call on Derivative Risks
https://www.wrightresearch.in/blog/the-indusind-saga-2025-a-wake-up-call-on-derivative-risks/[5] 5 RegTech platforms streamlining finance compliance in ...
https://ibsintelligence.com/ibsi-news/5-regtech-platforms-streamlining-finance-compliance-in-india/