Description

BSE introduces methodology for computing Delta (FutEq) for intraday monitoring of Market Wide Position Limits using real-time underlying prices and T-1 day volatility.

Summary

BSE has issued a Standard Operating Procedure (Annexure 2) detailing the methodology for Delta Computation used in intraday monitoring of Market Wide Position Limits (MWPL) for single stock derivatives on a Future Equivalent (FutEq) basis. The procedure specifies the use of real-time underlying prices and previous day’s volatility for computing option deltas.

Key Points

  • Real-time underlying value of the security at the time of snapshot will be used for underlying price
  • Volatility of the underlying on Previous day EOD (T-1 day) will be used for intraday volatility computation
  • FutEq of a call option contract equals N(d1)
  • FutEq of a put option contract equals N(d1) - 1
  • FutEq of a futures contract equals 1
  • Risk-Free Interest Rate (Rf) is fixed at the latest RBI Repo rate
  • N(d1) represents the cumulative probability distribution function

Regulatory Changes

This circular establishes the standardized methodology for computing Future Equivalent positions for derivatives contracts, ensuring consistent application of MWPL monitoring across the exchange.

Compliance Requirements

For Trading Members and Market Participants:

  • Understand the Delta computation methodology for accurate position monitoring
  • Ensure compliance with MWPL limits calculated using the FutEq basis
  • Monitor positions throughout the trading day as deltas are computed in real-time

Computation Formula:

  • d1 = {ln(S/K) + (Rf + 0.5 * Vol_Annual^2) * T} / (Vol_Annual * sqrt(T))
  • Where: S = Underlying Price at snapshot, K = Strike Price, Rf = RBI Repo rate, Vol_Annual = Annualized Applicable Volatility, T = Prorated Time to Expiry

Important Dates

  • Effective Date: October 31, 2025
  • Reference: Exchange Notice no. 20250930-114 dated September 30, 2025 (for Time to Expiry definition)

Impact Assessment

Market Impact:

  • Provides transparency and standardization in MWPL monitoring for single stock derivatives
  • Enhances risk management framework for the derivatives market
  • Real-time computation ensures accurate position tracking throughout the trading session

Operational Impact:

  • Trading members must align their internal systems with BSE’s Delta computation methodology
  • Use of T-1 day volatility provides stability in intraday calculations
  • Standardized approach facilitates better risk assessment and position management

Trading Impact:

  • Affects all participants trading in single stock futures and options
  • Critical for maintaining positions within regulatory MWPL limits
  • Intraday monitoring may trigger position adjustments if limits are approached

Impact Justification

Critical operational procedure affecting all derivatives market participants for MWPL monitoring and compliance