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Bank Nifty, FinNifty, Bankex: Ajay Garg explains SEBI's new derivatives norms - BusinessToday

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  Published in Business and Finance on Monday, November 3rd 2025 at 3:14 GMT by Business Today

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What the new rules cover

The new norms touch on almost every facet of derivatives trading. They are organised around four pillars: margining, position limits, liquidity provision, and data disclosure.

Margining

One of the most significant changes is the move to a tiered margining framework. Instead of a one‑size‑fits‑all approach, SEBI will now allow market participants to qualify for lower margins on trades that have been pre‑verified for lower systematic risk. For example, an entity that has consistently demonstrated a low VaR (Value at Risk) profile can now receive a 15 % margin reduction on its Bank Nifty futures, whereas a counterpart that has shown higher volatility exposure may see its margin increase to 25 %. This encourages prudent risk‑taking while ensuring that higher‑risk players still cover potential losses.

Position limits

Position limits have been expanded to keep large, potentially destabilising exposures under tighter scrutiny. The new limits set a cap of 15 % of the underlying index’s total value for any single entity on any single trading day. Ajay Garg emphasised that these limits apply not just to individual traders but to the cumulative positions of all entities under a single corporate umbrella, including subsidiaries and affiliated funds.

Liquidity provision

Liquidity rules now include a requirement that brokers provide a minimum of 1 % of the daily trading volume in Bank Nifty, FinNifty, and Bankex to the exchange’s Liquidity Pool. This move is intended to ensure that there is always a cushion of liquidity available in case of sudden market shocks, particularly during the peak trading hours of 10 AM to 12 PM and 3 PM to 5 PM when volatility tends to spike.

Data disclosure

Finally, SEBI has mandated that all trades on Bank Nifty, FinNifty, and Bankex must be reported within 30 minutes of execution. The data must include not only the transaction details but also the underlying risk metrics (VaR, Expected Shortfall) used by the participant to compute margin calls. This rapid disclosure will allow the regulator to identify concentration risks and intervene before they grow.

The three indices in focus

Bankex, the newest entrant, was launched by SEBI in late 2024 to provide a dynamic, real‑time snapshot of bank‑sector exposure that takes into account overnight risk adjustments. The index is now part of the mandatory liquidity pool, ensuring that there is always a buffer for large, unexpected movements in the bank sector. Ajay Garg noted that Bankex will also be used as a benchmark for regulatory stress‑testing of banks’ capital adequacy ratios.

Ajay Garg’s take on the regulations

Ajay Garg highlighted that the new norms are designed to balance flexibility with prudence. “We are not looking to stifle innovation,” he said. “Rather, we are creating a safety net that encourages market participants to use derivatives for genuine hedging purposes.” He also pointed out that the margining framework will gradually be rolled out in phases, starting with Bank Nifty and FinNifty and then moving to Bankex, to allow participants to adapt gradually.

Key highlights from Garg’s interview

• Margining tiers will be calibrated using a data‑driven approach that looks at past transaction behaviour, VaR and the frequency of margin calls.
• Position limits will be monitored in real‑time through the exchange’s Real‑Time Exposure Dashboard (RRED), which will be updated every 5 minutes.
• Liquidity pools will now be mandatory for all brokers with a minimum asset base of ₹500 cr, ensuring a larger number of market makers participate.
• Data transparency will be achieved through the Unified Market Information System (UMIS), which will integrate data from all major exchanges and provide a single source of truth for regulators and market participants.

How to interpret the impact

Retail traders: The margin reductions may make it easier for them to enter Bank Nifty positions, provided they can demonstrate a low VaR. However, the new position limits mean that any single trader cannot take an excessively large stake in any of the three indices.

Institutional players: The regulatory framework will push them to adopt more sophisticated risk models. They will also need to adjust their liquidity budgets to meet the new pool requirements.

Brokers and exchanges: The liquidity pool obligation means that brokers will need to allocate a portion of their capital to maintaining sufficient liquidity, which could affect their profitability metrics. Exchanges, meanwhile, will have to upgrade their IT infrastructure to support the 30‑minute data disclosure and the real‑time exposure dashboards.

What’s next for SEBI

In a statement released on the same day, SEBI announced that it will publish a Guidelines on Real‑Time Exposure Management in the coming months. The guidelines will outline how participants can compute and report VaR and Expected Shortfall on a daily basis. SEBI also indicated that it will run a simulation exercise with a panel of banks and major market makers to test the resilience of the new system before full implementation.

Ajay Garg concluded that “these measures are part of a broader strategy to create a more resilient derivatives market that can withstand shocks without forcing systemic risk onto the broader economy.” He underscored that the new rules will be “tested and tweaked” as the market responds to real‑world conditions, ensuring that the regulatory environment remains dynamic and responsive.

The updated regulations represent a substantial shift in India’s derivatives market, moving from a relatively open, low‑margin regime to a structured, data‑driven ecosystem. By tightening margins, imposing position limits, requiring liquidity provision, and enforcing rapid data disclosure, SEBI aims to reduce systemic risk while still allowing investors to hedge effectively. For traders and institutions, the changes will require adaptation in risk modeling, capital allocation, and compliance infrastructure. As the new rules go live, market participants will have to navigate a more disciplined but potentially more rewarding trading environment.