Description

SEBI introduces risk management framework for pre-open session in equity derivatives, including margin requirements and order validation procedures.

Summary

BSE has implemented new risk management measures for the pre-open session in equity derivatives (both single stocks and indices) following SEBI circular SEBI/HO/MRD/TPD-1/P/CIR/2025/79 dated May 29, 2025. The framework introduces stringent margin checks at order level before inclusion in pre-open session, with no netting benefits and calendar spread or cross margining advantages.

Key Points

  • All orders must pass margin sufficiency checks at order level before pre-open session inclusion
  • Incoming orders subjected to pre-risk management for SPAN + ELM margins
  • Risk parameters and maximum execution price considered during pre-open session
  • Order level margins assessed along with client’s brought forward portfolio at clearing member level
  • No netting of pre-open orders with brought forward portfolio or offsetting orders
  • For offsetting pre-open orders, higher of SPAN+ELM (long or short side) considered
  • Margin benefits from calendar spread and cross margining not applicable during pre-open session

Regulatory Changes

Pre-Open Session Risk Framework:

  • Mandatory margin sufficiency verification before order acceptance
  • Contract-level pre-risk management implementation
  • Elimination of netting benefits during pre-open session
  • Removal of calendar spread and cross margining advantages for pre-open orders

Order Validation Process:

  • Risk parameters prevailing at pre-open session time to be used
  • Maximum potential execution price to be factored in margin calculations
  • Aggregated assessment at clearing member level for margin sufficiency

Compliance Requirements

For All Members:

  • Ensure all pre-open session orders meet margin sufficiency requirements
  • Implement order-level margin checks before submission
  • Account for SPAN + ELM margins at contract level
  • Verify clearing member-level margin adequacy including client portfolios

For Clearing Members:

  • Assess overall margin sufficiency considering client brought forward portfolios
  • Manage higher margin requirements due to no netting benefits
  • Monitor offsetting orders and apply higher of long/short side SPAN+ELM

Important Dates

  • SEBI Circular Date: May 29, 2025
  • ICCL Circular Date: May 30, 2025
  • Notice Date: December 03, 2025
  • Effective Date: Immediate (as per notice issuance)

Impact Assessment

Market Impact:

  • Higher margin requirements during pre-open session may reduce order flow
  • Increased capital deployment needed for pre-open trading activity
  • Enhanced risk monitoring strengthens market integrity

Operational Impact:

  • Trading members need to adjust systems for stricter margin checks
  • Clients may face order rejections if insufficient margins
  • Risk management systems require updates to handle new framework

Participant Impact:

  • Traders must maintain higher margins for pre-open session participation
  • Loss of netting benefits increases capital costs
  • Removal of cross margining and calendar spread benefits reduces margin efficiency

Contact Information:

Impact Justification

Introduces significant risk management framework changes for equity derivatives pre-open session affecting all market participants